Presence of herd behavior in stock trading : Comparing different business sectors listed on the Swedish Stock Market

This paper investigates the investment behavior among financial market participants. Using the methodology of Cross-Sectional Absolute Deviation (CSAD), focus is on the presence of herd behavior. Herding is a situation in which investors disregard their own private information and follow the actions of what they perceive other investors are doing, thus basing their financial decisions on the collective. With the method one is assumed to observe indication of herding towards the market return in periods of large market movements through a decrease in return dispersion. This is contrary to the idea of fully efficient financial markets. The phenomenon is controlled for at an industry-level, using a subset of 3 industries listed on the Stockholm Exchange in Sweden. The method is applied during the first 20-year period of the 21st century and the data consist of daily adjusted returns. No evidence of herding is found in any of the industries, regardless of the market exhibiting bull- or bear behavior