Herd behavior in the Bangladeshi banking sector

Abstract

This study aims to investigate the existence and nature of herding behavior in the banking sector in Bangladesh. It uses daily closing prices of 30 listed commercial banks from January 2007 to December 2018 to detect herding. This study confirms the presence of herding in the banking industry for the whole study period. Further, it finds herding in the banking sector during the domestic financial crisis and no herding in the Global financial crisis. By separating the study period into a rising market and a falling market condition, this paper finds asymmetry in herding behavior in the banking sector. This phenomenon is further confirmed when the extreme market condition of the bull and bear phase is used. Investors in the banking industry flock together ignoring any private information to reap the market return at the bull period while they avoid the crowd during the bear phase.