ICEF/LFE Research Seminar by Mark Trede (University of Munster)

On Thursday, May 26 at 4.40 pm, room 3211 (Shabolovka str. 26) ICEF and LFE held the Research Seminar in Finance.
Speaker: Mark Trede (University of Munster)
Theme: "The Case for Herding is Stronger than You Think" joint with Martin T. Bohl and Nicole Branger

Abstract: In this paper, we challenge the often implemented herding measure by Chang, Cheng, and Khorana (2000). They regress the cross-sectional absolute deviation of returns on the absolute and squared excess market return. A coeffcient on the squared excess market return significantly smaller than zero is interpreted as evidence for herding. However, we show that the true coeffcient is positive under the null hypothesis of no herding. Hence, their test is biased against finding evidence in favour of herding. An empirical examination for the S&P 500 confirms the misleading implications of Chang, Cheng and Khorana's measure, while our modified test provides clear-cut evidence for herding behaviour.

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