Industry herding and momentum strategies

Riza Demirer, Donald Lien and Huacheng Zhang

Pacific-Basin Finance Journal, 2015, vol. 32, issue C, 95-110

Abstract: This paper evaluates the impact of industry herding on return momentum. While the findings support that winner industries outperform loser industries in subsequent months, we find that the profitability of industry momentum strategies depends on the level of herding in an industry. Loser industries with high level of herding yield significantly lower subsequent returns than loser industries with low level of herding while no significant difference in subsequent returns is observed for winner industries across low and high herding levels. The asymmetry in the relationship between herding and momentum returns is in fact the driving factor behind profitable, zero-cost momentum strategies and suggests that the level of herding in an industry must be considered in the implementation of industry momentum strategies.

Keywords: Momentum; Industry herding; Chinese stock markets (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:32:y:2015:i:c:p:95-110

DOI: 10.1016/j.pacfin.2015.02.010

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