Do Firm Characteristics Matter in Explaining the Herding Effect on Returns?

Posted: 15 Mar 2018 Last revised: 24 Jun 2018

See all articles by Riza Demirer

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies

Date Written: March 12, 2018

Abstract

This paper explores whether firm characteristics matter in determining the effect of investor herding on asset returns. We find that the level of herding alone does not command a significant effect on industry returns, implied by insignificant return spreads between industries that experience high and low degrees of herding. On the other hand, we observe that herding has a significant interaction with size and past returns. We find that small firms with high level of herding significantly underperform small firms that experience low herding. Similarly, past loser industries with high level of herding significantly outperform loser industries with low herding. No significant interactions between book-to-market and market beta with herding are observed. Overall, the findings suggest that the herding effect presents itself via size and momentum channels with significant investment implications.

Keywords: Anomalies, Industry herding, Asset pricing

JEL Classification: G14, G15

Suggested Citation

Demirer, Riza and Zhang, Huacheng, Do Firm Characteristics Matter in Explaining the Herding Effect on Returns? (March 12, 2018). Review of Financial Economics, 2018, Available at SSRN: https://ssrn.com/abstract=3138954

Riza Demirer (Contact Author)

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

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(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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