Applying an alternative test of herding behavior: A case study of the Indian stock market

The paper presents an alternative approach to test herding behavior in the Indian equity market. In contrast to the conventional test methodologies, based on return dispersions among a group of securities, this paper uses symmetric properties of the cross-sectional return distribution to identify herding. Using this alternative approach, we find evidence of herding in the Indian equity market during the sample period which tends to be more pronounced during the 2007 crash. The paper also finds that the rate of increase in security return dispersion is relatively lower in the up market compared to down market days. This finding is contrary to the directional asymmetry documented by McQueen et al. (1996).