Herding Prospects: A Granger Causality Approach Shaista Jabeen (a*) , Sayyid Salman Rizavi (b*), Muhammad Farhan (c*)
(a). Lahore College for Women University
(b). University of the Punjab 2
(c). National University of Modern Languages
Abstract
The existing study aims to examine the herd behaviour in Pakistan Stock Exchange (PSX) as well as in all sectors of PSX. It has been observed that herding can lead to price stability and also it can result in inefficient markets. However, some researchers argued that herding can be the cause of inefficient financial markets. To achieve the research objectives, the stock price data of 528 companies listed in PSX has been gathered. The study has also focused on intraday, daily, weekly, and monthly aspects of herding. The Granger Causality approach has been used to investigate the presence or absence of herd behaviour in PSX and its sectors. The findings revealed that, the nature of causality was two-way i.e. from R2m,t to CSADt and CSADt to R2m,t, in Pakistan Stock Exchange and its few sectors, however, some sectors showed a lack of two-way causality, and few sectors depicted one-way association. Results demonstrated that two-way and one-way causal association between variables is generally experienced in short-run than the long-run. The research has some implications for policy makers.
