Herding in Factor Portfolios: A Regime-Switching Perspective on the Indian Market
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Abstract
The current research investigated dynamic herd behavior in different factor portfolios for the Indian Stock Market. The study is conducted on three factors: market size, volume and profit-book ratio from 2009-2023. Using the three-regime Markov model, the study documented notable results. We observed herding for large, high-volume, and value stocks with extremely high volatile regimes. These results exhibit that the type of stocks matters while investing in the stock markets. Investors behave differently for various types of stocks and impact the market trend, especially in times of unprecedented situations. These results have implications for investors, market regulators, and portfolio managers.
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