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An Empirical Study on BSE Sectoral Indices Abstract Being a social creature, the herd instinct pushes individuals to imitate and ape the mental actions of surroundings. Similarly, the investors gravitate themselves with the behavioral pattern of environs which instigates the herding behavior.
The research piece of work is trying to explore the prominent herding behavior amongst the 13 sectoral indices of Bombay Stock Exchange BSEstarting from the period of January to December The abnormal returns of BSE sector indices have been calculated and the methodology of CH and CHK is being used for evidencing the existence or non-existence of herding behavior in BSE sectoral indices.
The paper will also try to attempt the herding behavior in bull and bear phases. To test the presence of herd instinct a linear regression model has been applied. The result of the paper will endorse the fact whether BSE sectoral indices are efficient or inefficient.
Herd instinct, Sectoral indices, Bull and bear, Efficient markets Introduction Behavioral finance is an evolving theme of finance which incorporates the psychology of individuals into the traditional finance.
Efficient Market Hypothesis EMHpropounded by Eugene Fama s states that markets are efficient and every piece of information is being reflected in the prices of securities, but the theories of behavioral finance evidences that in general markets are quasi-rational or irrational.
The notion behind this framework is the existence of human minds which gets affected by the happenings in the surroundings. The investment decision revolves around the behavioral aspects of investors, which gives birth to biases and distorts the meticulous investment decisions.
Herding behavior is one of the prominent biases in the field of behavioral finance which affects the market efficiency.
The rational investor always wants to buy low and sell high, but the instincts of herding push investor to buy what others are buying and sell what others are selling irrespective of their own analysis and information what they possess with them.
Many of the observers cite that the bubbles and crashes are also the end result of herding behavior as investors follow the acts of the crowd Abhijeet V. Banerjee, The theory of selective auditory attention also postulates the herding bias in the manner that individual listens to what they want to listen and give their ear to that sound and noise.
This niche is connected with intentional herding rather than spurious herding where the piece of information is taken rationally on the grounds and investors take similar decisions.
On the other side of the coin, this intentional herding finds its own ways by imitating the action of others by putting aside their own analysis and knowledge and rushes with the crowd. The bandwagon effect is to be seen by the acts and assessments of investors and the only thing is the decisions of early investors are to be followed by others keeping in view the snowballing effect Sushil Bikhchandani and Sushil Sharma, The underlying reasons for herding in human are that individuals feel secure to be a part of the group and chases the tag of being called labeled rather than a dissenter Robert R.
Other than that, individuals think that they will get benefited with the piece of available information remained with the group which they might cannot access.
The ultimate idea for herding instinct in individuals is driven by obtaining resources and minimizing the overall risks, but they want to ignore the fact that it can escort them to terrible crashes Michael E. Price, The Bombay Stock Exchange BSE is one of the oldest stock exchanges in Asia and fifth most active exchange in terms of number of transactions handled electronically.
Review of related Literature The varied available literature threw light on the existence and non-existence of herd behavior in the stock market.Thinking Outside the Box: A Misguided Idea The truth behind the universal, but flawed, catchphrase for creativity. Posted Feb 06, Herding behavior is one of the prominent biases in the field of behavioral finance which affects the market efficiency.
The rational investor always wants to buy low and sell high, but the instincts of herding push investor to buy what others are buying and sell what others are selling irrespective of their own analysis and information what. Behavioral Finance in Herd Behavior Essay Sample.
There are various types of irrational behaviors of investors, among which we are highly interested in why people tend to follow what others do rather than believe in his or her own judgment.
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Why does herd behavior happen, particularly if it results in harmful or irrational actions? One reason is that there is a strong social pressure afforded to conformity. 南信州の田舎、自然、レア情報満載。観光ポータルサイトぶらっとマップ、その名も「ぶらっぷ」。遊ぶ、食べる、見る、感じる、癒し、泊まる、買う、催しもの をテーマにレア情報をお届けします。.