Impact of KSE-100 Index Returns on Investor Herding

Abstract

This study explores the impact of KSE-100 index returns on investor herding in the Pakistan Stock Exchange (PSX). This research adopts a quantitative approach using daily data from July 2020 to June 2025 for KSE-100-listed companies. The Cross-Sectional Absolute Deviation (CSAD) measure is used to assess investor herding. To test the relationship, a multiple linear regression is estimated using Ordinary Least Squares (OLS). The findings show that KSE-100 returns significantly affect investor herding. Market returns are found to have a positive and significant effect on return dispersion, while the squared market return has a negative and significant impact, thus confirming herding in times of extreme returns. In addition, volume has a positive and significant effect on return dispersion. This research contributes to the existing literature by providing recent empirical evidence on herding in the Pakistan Stock Exchange. It also advances understanding of investor behaviour in emerging markets and offers insights to improve market efficiency and regulatory frameworks.