Firm-specific information driving herd behaviour and crash risk: empirical evidence from the Indian equity market

Bharti Bharti (), Sanjeev Gupta (), Ashish Kumar () and Ratna Priya ()
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Bharti Bharti: Guru Gobind Singh Indraprastha University
Sanjeev Gupta: Central University of Himachal Pradesh
Ashish Kumar: Guru Gobind Singh Indraprastha University
Ratna Priya: Guru Gobind Singh Indraprastha University

Future Business Journal, 2025, vol. 11, issue 1, 1-16

Abstract: Abstract This study aims to analyse the influence of firm-specific information (FSI) on herd behaviour in the Indian equity market, with a particular focus on asymmetrical herding and the role of liquidity on stock price crash risk. Drawing on data from the S&P CNX NIFTY Index and 44 constituent stocks from 2008 to 2022, FSI is operationalized by return non-synchronicity, return skewness and information discreteness. Herding is captured through cross-sectional absolute deviation (CSAD) while stock price crash risk is modelled using the negative coefficient of skewness of returns. Using ordinary least squares regression with dummy variable interactions, the main finding reveals significant impact of return non-synchronicity on CSAD, indicating evidence of intentional–rational herding. The results are amplified for market asymmetries, with bear market conditions exhibiting an intentional–irrational herd pattern. Further, the study reveals positive impact of stock liquidity on price crash risk. This study is a refreshing departure from the traditional assumption of irrational herd behaviour in emerging equity markets and connects the FSI to both herding and price crash dynamics, offering new insights into herd dynamics in the Indian context. The findings bridge the gap between theoretical and empirical literature and provide valuable implications for researchers, investors, policymakers and market regulators to guide actions to enhance market efficiency and stability.

Keywords: Crash risk; Cross-sectional absolute deviation; Equity markets; Herding behaviour (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1186/s43093-025-00639-y

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