Herding Behavior Analysis of Investors in Large-Cap and Small-Cap Stocks

Herding behavior is one of the key phenomena in financial markets and can lead to severe price fluctuations and the formation of speculative bubbles. The aim of this study is to examine herding behavior among investors in large-cap and small-cap stocks. To achieve this, the Cross-Sectional Absolute Deviation (CSAD) model is employed to measure herding, and the effects of various factors—including market returns, trading volume, and liquidity—are analyzed using ordinary least squares regression. The findings indicate that herding intensifies during periods of high market volatility and that a nonlinear relationship exists between market returns and CSAD. Under conditions of heightened volatility, small-cap stocks exhibit stronger herding behavior compared to large-cap stocks. Furthermore, the analysis of trading volume and liquidity reveals that trading volume has a limited impact on herding, whereas higher liquidity reduces herding behavior—a pattern that is more pronounced in small-cap firms. Overall, the results suggest that investor herding is significantly influenced by market volatility and liquidity conditions. These insights can assist policymakers and investors in gaining a deeper understanding of market dynamics and managing the risks associated with collective behavioral patterns.