Do Banking and Financial Services Sectors Show Herding Behaviour in Indian Stock Market Amid COVID-19 Pandemic? Insights from Quantile Regression Approach

In India, the coronavirus (COVID-19) pandemic-induced country-wide regulatory lockdown and consequential supply-chain disruptions and market instability have all posed serious challenges before the regulators and policymakers. Amid the pandemic, the stock market showed return volatilities primarily due to the unexpected investors’ behaviour. One of the behavioural biases is herding, which has the power to wreck the market equilibrium and shatter the market efficiency. Given that the pandemic has generated unprecedented spirals of uncertainties across the globe, thereby creating interruptions in the pattern of stock market investment decisions, this study examined the herding behaviour of 54 stocks of banking and financial services sectors listed in the national stock exchange. In the quantile regression framework, the study provides evidence of the presence of herding for public sector banking and financial services under the bull market conditions during the pandemic in the 90th quantile of the return distribution. This finding has implications for the mispricing of financial assets in these sectors. So, the study suggests removing information asymmetry among the market participants and devising policy initiatives for ensuring market stability.