Herding,momentum and investor over-reaction |
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| Authors: | Rani?Hoitash Murugappa ?Krishnan |
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| Institution: | (1) Department of Accountancy, Bentley College, 175 Forest Street, Waltham, MA 02452-4705, USA;(2) Department of Accounting, Yeshiva University, 500 West 185th Street, New York, NY 10033, USA |
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| Abstract: | In this paper we study the impact of noise or quality of prices on returns. The noise arises from herding by market participants
beyond what is justified by information. We construct a firm-quarter-specific measure of speculative intensity (SPEC) based
on autocorrelation in daily trading volume adjusted for the amount of information available, and find that speculative intensity
has a significant positive impact on returns. Both cross-sectional and time series variation in SPEC are consistent with conventional
wisdom, and with implications of theories of herding as in DeLong et al. (1990, J Political Econ 98(4):703–738). We find that high-SPEC firms drive the returns to momentum trading strategies and that
investor over-reaction is significant only in the case of high-SPEC firms.
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| Keywords: | Noise in prices Measuring speculation Herding not due to information Momentum trading Investor over-reaction |
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