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Industry Herding, Spillover Index and Investment Strategy

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  • Tung-Yueh Pai
  • Yen-Hsien Lee

Abstract

This study investigates the spillover effects of the herding behavior of institutional investors in industries using the new spillover index. We further examine the lead-lag relationship between the herding spillover index and stock market. Finally, this paper furthers our understanding of the momentum strategy in industries. The empirical evidence indicates that industry herding in terms of semi-conductor manufacturing has had a significant impact on other types of industry herding. Second, since the industry herding spillover index and the selling industry herding spillover index have led to stock index returns, we conjecture that the industry herding spillover effect is a predicate to stock returns. Finally, the results support the claim that an institutional investor is an industry momentum trader. Moreover, we find that a long position in relation to higher or lower herding winners and a short position in relation to low herding losers yields good subsequent returns. JEL classification numbers: G02; G23Keywords: Industry herding, Spillover Index, Momentum

Suggested Citation

  • Tung-Yueh Pai & Yen-Hsien Lee, 2018. "Industry Herding, Spillover Index and Investment Strategy," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(6), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:8:y:2018:i:6:f:8_6_6
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    References listed on IDEAS

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    More about this item

    Keywords

    industry herding; spillover index; momentum;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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