The purpose of this paper is to investigate the trading strategy of stock market investors to exhibit herding behavior and then decompose it into spurious and intentional herding behavior under different market conditions. Empirically we used the Christie and Huang (1995) model on daily market prices for the Pakistan Stock Exchange (PSX) for the period 2009 to 2016. Specifically for financial year 2016, all stocks are ranked on their B/M (MV) ratio and are assigned to a High B/M (High MV) sub-sample to create a portfolio of ‘‘value’’ (large) stocks and a Low B/M (Low MV) to create a portfolio of ‘‘growth’’ (small) stocks. Results showed no presence of herding behavior in all Indexes so herding is neither spurious nor intentional. For 2016 portfolios, herding behavior is present and it is intentional (True herding). Coming towards sector wise results, herding is present only in Leasing companies and it is intentional herding. The results suggested that the herding behavior is intentional in Pakistan Stock Exchange.
Herding behavior, spurious and intentional, small and large stocks, high and low market capitalization.