{"title":"The Effects of Herding on Betas and Idiosyncratic Risk","authors":"P. Messis, A. Alexandridis, A. Zapranis","doi":"10.1080/15427560.2021.1975713","DOIUrl":null,"url":null,"abstract":"Abstract This paper investigates the consequences of herding on systematic and idiosyncratic risk for stocks traded on S&P 500. Herding behavior is measured through a state-space model. Using monthly data from 1999 to 2017, different periods of herding and adverse herding are present. Evidence shows that the state space model identifies the significant herding effects on both risk measures for specific portfolios. Our findings validate the expected implications of herding on betas but not of adverse herding. In addition, the low-beta anomaly is not confirmed on our beta-based portfolios. On the other hand, we confirm the risk-return relationship. We attribute this evidence to overpriced values of high beta assets as well as to the effects of adverse herding on the systematic and idiosyncratic risk. Finally, we also show that the herding level could serve as a systematic driver of returns improving the portfolio performance of traditional ‘anomaly’ based strategies.","PeriodicalId":47016,"journal":{"name":"Journal of Behavioral Finance","volume":"88 10 1","pages":"131 - 146"},"PeriodicalIF":1.7000,"publicationDate":"2021-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Behavioral Finance","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1080/15427560.2021.1975713","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 1
Abstract
Abstract This paper investigates the consequences of herding on systematic and idiosyncratic risk for stocks traded on S&P 500. Herding behavior is measured through a state-space model. Using monthly data from 1999 to 2017, different periods of herding and adverse herding are present. Evidence shows that the state space model identifies the significant herding effects on both risk measures for specific portfolios. Our findings validate the expected implications of herding on betas but not of adverse herding. In addition, the low-beta anomaly is not confirmed on our beta-based portfolios. On the other hand, we confirm the risk-return relationship. We attribute this evidence to overpriced values of high beta assets as well as to the effects of adverse herding on the systematic and idiosyncratic risk. Finally, we also show that the herding level could serve as a systematic driver of returns improving the portfolio performance of traditional ‘anomaly’ based strategies.
期刊介绍：
In Journal of Behavioral Finance , leaders in many fields are brought together to address the implications of current work on individual and group emotion, cognition, and action for the behavior of investment markets. They include specialists in personality, social, and clinical psychology; psychiatry; organizational behavior; accounting; marketing; sociology; anthropology; behavioral economics; finance; and the multidisciplinary study of judgment and decision making. The journal will foster debate among groups who have keen insights into the behavioral patterns of markets but have not historically published in the more traditional financial and economic journals. Further, it will stimulate new interdisciplinary research and theory that will build a body of knowledge about the psychological influences on investment market fluctuations. The most obvious benefit will be a new understanding of investment markets that can greatly improve investment decision making. Another benefit will be the opportunity for behavioral scientists to expand the scope of their studies via the use of the enormous databases that document behavior in investment markets.
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