Impact of Herding Behaviour in the PSX in Relation to Foreign Investor Portfolio Investment
DOI:
https://doi.org/10.31384/jisrmsse/2026.24.1.4Keywords:
Herding Behaviour, Foreign Portfolio Investment, KSE100 indexAbstract
The study analyses the herding behaviour in the Pakistan Stock Exchange and evaluates the influence of foreign portfolio investment (FPI) on this behaviour under different market conditions. Employing daily data of the KSE-100 index benchmark and individual stock returns of KSE-100 index companies from January 2020 to May 2025. The daily data were collected from the Pakistan Stock Exchange Data Portal and the National Clearing Company of Pakistan Limited (NCCPL). The study used the Cross-Sectional Absolute Deviation (CSAD) approach, along with a modified CSAD model for foreign investor flows. The results indicate significant evidence of market-wide herding in the PSX, indicated by a significant negative relationship between squared market return and return dispersion. The results further reveal asymmetric herding behaviour during bullish market conditions. Moreover, domestic investors express herding behaviour in response to net foreign selling, while no significant herding is observed during foreign buying. This implies that foreign investors act as informational leaders during capital outflows. These findings contribute to the behavioural finance literature by extending the CSAD model to an emerging market context with foreign capital flows. The study also offers practical implications for policymakers and investors in understanding market dynamics and improving market stability.
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Copyright (c) 2026 Arslan Iqbal, Zaeema Asrar Mohiuddin, Muhammad Mubeen
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