Existence of Herding Behaviour in the Indian Stock Market

A key concept in behavioural finance is “herding behaviour,” which describes investors’ propensity to follow the lead of others rather than using their own discretion. This phenomenon runs counter to conventional theories of finance, which presume efficient markets and logical decision-making. Herding behaviour has become increasingly important in developing nations such as India, where the number of retail investors is rapidly increasing. This paper offers a theoretical investigation of herding behaviour in the Indian stock market, examining its causes, and effects on asset pricing and market stability. The study makes the case that, particularly during times of high volatility, herding behaviour has a major impact on stock returns, trading volumes, and bubble formations. Regulations, investor education, and technological transparency can lessen irrational herd formation, even though information cascades, media sentiment, and social influence amplify the effect.