The Existence and Impact of Herd Behavior on Pakistani Textile Sector

Abstract

In this study, the influence of investors' herding behavior on stock market performance is investigated. Previous research has demonstrated that fundamental knowledge is what drives herd behavior, which prompts swift price changes in reaction to fresh knowledge and, as a result, creates efficient markets. However, some research contends that price volatility results from herd behavior, which is unaffected by fundamental information. For the intent of this study, the stock returns were computed using the daily closing prices of the shares of the textile companies listed on the PSX. Utilizing the market-wide herd measure, Chiang and Zheng (2010) analyzed the herd behavior across the entire market. It significantly affects the return on the stock market. The results and their connection will be displayed using multiple regression analysis. A look at the data's Stationarity, Heteroscedasticity, and Autocorrelation issues has been done. The findings revealed that herding wasn't used in PSX, despite being used in other sectors. The results of this study can help regulators thoroughly examine market irregularities that support effective market processing. These findings offer firm finance managers practical guidance for raising market returns. This research fills a knowledge gap by focusing on the effects of herding behavior, currency exchange rate, GDP growth, as well as liquidity on the return of the stock market.