This paper aims at exploring the effect of financial crises which started in 2008 on the herding behaviour of market participants using the Spanish financial market as a case. We conduct this study to Investigate Herd behaviour in Financial Market of Spain an Ex-ante and Ex-post analysis of financial crises of 2008 considering daily returns of all stocks market index during market stress, a period between 2002 and 2011. The 2008 financial crises which were triggered by the inappropriate use of mortgages in the subprime market have led to recessions among the major economies in the world. Considering that Spain is one of the most affected countries by the financial meltdown, the Spanish recession continued to deepen until this point in time and the consequences were reflected in high volatility and pessimistic downward movement in the stock market. We expect to find positive and significant coefficient values of the dummy variables used to detect the extreme movements in the dispersions of the individual stocks, where significant and negative beta coefficients would indicate the presence of the herd formation. The study concludes that the Spanish market investors, either before or after the crises, do not tend to abandon their private information and form a herd hence making a rational investment decision.
Keywords: Herd Behaviour; Financial Markets; Financial Crises; Spain