Industry Herding and Momentum

Posted: 21 May 2019

See all articles by Zhipeng Yan

Zhipeng Yan

New Jersey Institute of Technology

Yan Zhao

City College - City University of New York

Libo Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department

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Date Written: March 19, 2012

Abstract

Theoretical models on herd behavior predict that under different assumptions, herding can bring prices away (or towards) fundamentals and reduce (or enhance) market efficiency. In this article, we study the joint effect of herding and momentum at the industry level. We find that the momentum effect is magnified when there is a low level of investor herding. Herd behavior in investors helps move asset prices towards fundamentals, enhance market efficiency and reduce the momentum effect. A trading strategy taking a long position in winner industries and a short position in loser industries when the herding level is low can generate significant returns.

Suggested Citation

Yan, Zhipeng and Zhao, Yan and Sun, Libo Alice, Industry Herding and Momentum (March 19, 2012). Journal of Investing, Vol. 21, 2012, https://doi.org/10.3905/joi.2012.21.1.089, Available at SSRN: https://ssrn.com/abstract=2235955

Zhipeng Yan (Contact Author)

New Jersey Institute of Technology ( email )

United States

Yan Zhao

City College - City University of New York ( email )

Convert Avenue at 138th Street
New York, NY 10031
United States

Libo Alice Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department ( email )

United States

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