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Industry Herding and the Profitability of Momentum Strategies During Market Crises

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  • Riza Demirer
  • Huacheng Zhang

Abstract

The degree of industry herding is significantly related to the subsequent performance of winner and loser industries. While the herding effect on losers is not inconsistent with investors’ tendency to herd on negative information, the herding effect on winners reflects institutional demand for overpriced securities. An alternative momentum strategy based on the degree of herding within an industry significantly outperforms the conventional industry momentum strategy over the subsequent 1, 3, 6, and 12 months. The findings suggest that behavioral patterns could be utilized to generate enhanced momentum profits, even during market stress periods when the conventional momentum strategy performs poorly.

Suggested Citation

  • Riza Demirer & Huacheng Zhang, 2019. "Industry Herding and the Profitability of Momentum Strategies During Market Crises," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 20(2), pages 195-212, April.
    • Handle: RePEc:taf:hbhfxx:v:20:y:2019:i:2:p:195-212
    DOI: 10.1080/15427560.2018.1505728
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    Cited by:

    1. Simarjeet Singh & Nidhi Walia, 2022. "Momentum investing: a systematic literature review and bibliometric analysis," Management Review Quarterly, Springer, vol. 72(1), pages 87-113, February.

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