Pricing of Herding

31 Pages Posted: 18 Sep 2010 Last revised: 14 Aug 2012

See all articles by Y. Peter Chung

Y. Peter Chung

University of California at Riverside

Sukwon Thomas Kim

Independent

Date Written: July 25, 2012

Abstract

We measure herding of trading activities by regressing individual order imbalances on market wide, industry wide, and dealer wide order imbalances. We find that stocks whose trading activities herd more have higher sensitivity of their returns to order imbalances. Investors demand compensations for herding. A 1% increase in the degree of herding this year predicts 8% increase in stock returns next year, after controlling for standard asset pricing factors and some of liquidity measures.

Keywords: Order Imbalance, Commonality, Herding

JEL Classification: G10, G12, G14

Suggested Citation

Chung, Y. Peter and Kim, Sukwon, Pricing of Herding (July 25, 2012). Available at SSRN: https://ssrn.com/abstract=1678151 or http://dx.doi.org/10.2139/ssrn.1678151

Y. Peter Chung (Contact Author)

University of California at Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States
909-787-3906 (Phone)
909-787-2933 (Fax)

Sukwon Kim

Independent

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