Herd behaviour in an emerging market: an evidence of calendar and size effects

Purpose This study aims to examine investors’ herd behaviour for various calendar events and size-based stock portfolios in Pakistan. The authors consider three calendar effects, crisis (COVID-19 and financial crisis 2018–19), announcement of political news and popular calendar anomalies (month-of-the-year and day-of-the-week), and investigate the impact of stock size on calendar effect in terms of investors’ herd behaviour. Design/methodology/approach The study uses non-linear specification to capture herd behaviour using firm-level daily data for 496 stocks listed on Pakistan Stock Exchange over the period 2001–2020. Findings The results indicate herd formation during periods of COVID-19, financial crisis, political news announcements and January (month-of-the-year). The authors also observe significant herding for the biggest and smallest size stocks over complete period. However, the authors find more pronounced herding in big stocks during January as compared to the more noticeable herding in small stocks over complete period. The findings suggest that herding in small stocks is not the main cause of January herding and hint on the prevalence of significant institutional herding during January. Practical implications The stock prices destabilize because of the mimicking behaviour during crisis periods, days of political announcements and month of January. Implementation of insider trading laws and transparent information environment can help in reducing these effects and increasing market efficiency. Originality/value The authors consider the recent COVID period in our analysis. In addition, we provide new evidence on the possible impact of stock size on calendar effect in terms of herd behaviour, which, to the best of the authors’ knowledge, has not yet been documented in literature.