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THE IMPACT OF MARKET PHASES AND CRISES: EVIDENCE FROM THE DHAKA STOCK EXCHANGE
Nusrat Khan Neela, Pallabi Siddiqua, Jebunnesa
DOI: https://doi.org/10.58964/JBA46N105
Abstract
This study examines herding behavior in the Dhaka Stock Exchange using the Cross-Sectional Absolute Deviation (CSAD) model developed by Chang, Cheng & Khorana (2000) supplemented by several robustness tests. A longitudinal research framework has been adopted, utilizing daily closing stock price data over a ten-year period spanning from January 1, 2015, to December 30, 2024. Unlike prior studies conducted predominantly in developed or other emerging markets, this research applies the CSAD model to the Dhaka Stock Exchange, which operates under a different regulatory environment and market structure, thereby enriching the cross-market understanding of herding behavior. The empirical findings confirm the presence of herding behavior in the Dhaka Stock Exchange. The study further reveals that herding behavior becomes significantly stronger during periods of global financial crises compared to normal market conditions. However, no statistically significant evidence of herding is found during domestic crisis periods. The analysis also indicates significant herding behavior during general bullish market conditions, although herding does not intensify during extreme bull phases relative to normal periods. In contrast, herding behavior is significantly pronounced during bearish market conditions and becomes more intense during the extreme bottom 5% and 10% market downturns. In addition, the results show that herding behavior persists during both high and low trading volume periods. The study also identifies the persistent nature of herding, suggesting that current herding tendencies are influenced by previous market behavior. Overall, the findings offer important implications for investors, regulators, and policymakers by enhancing the understanding of investor behavior and contributing to the improvement of market efficiency in Bangladesh.
Keywords: Herding Behavior, Behavioral Finance, Market Phases, Financial Crises, Bull and Bear Markets, Dhaka Stock Exchange, Emerging Stock Markets, CSAD, COVID-19 Pandemic, July Uprising
