A New Measure of Herding and Empirical Evidence
نویسندگان
چکیده
This study proposes a new measure and test of herding which is based on the crosssectional dispersion of factor sensitivity of assets within a given market. This new measure enables us to evaluate the directions towards which the market may be herding and separate these from movements in fundamentals. We apply the test to an analysis of the US, UK, and South Korean stock markets and somewhat surprisingly, ...nd statistically signi...cant evidence of herding towards ”the market portfolio” during relatively quiet periods rather than when the market is under stress. The approach also allows us to investigate herding towards other factors beyond the market factor and we ...nd that the US market shows signi...cant herding towards “value” after the Russian Crisis in 1998. Keyword Herding, Non-central Chi Square Distribution, Cross-sectional Volatility, Risk Management. JEL Code C12,C31,G12,G14
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