Herd Investing in Pakistani Stock Market: Evidence from Pakistan’s Stock Market Using Data of More Than Three Decades

Abstract

To contribute to the inconclusive existing literature about presence of herd-investing behavior in Pakistani stock market, this study utilizes non-linear regression approach introduced by Chang et al. (2000) to analyze investors' herding behavior in Pakistani stock investors and whether it varies during extreme market conditions. The study finds a symmetric and significant correlated trading behavior, both during bullish and bearish market conditions, among Pakistani stock investors, though the static herding behavior is absent at the full sample level. In addition, the herding behavior persists not only during the global financial crisis but also during COVID-19 pandemic, albeit more prominently during the former. The analysis of study also reveals a symmetric and significant correlated trading behavior during both lockdown and post-lockdown periods of COVID-19. These findings imply that Pakistani stock investors comprehend herding patterns in crafting efficient and proactive investment strategies to maximize portfolio diversification advantages, particularly during extreme market conditions.