• The Impact of Herding and Non-herding on Market return

Abstract

Herding may drive stock return volatility and prices co-movement. This study decomposes investor’s trading behavior into herding toward market returns and non-herding. We investigate the impact of both types of herding behaviors on stock market. Our results suggest that the herding behavior toward market returns was positively correlated with market returns, with which non-herding behavior was negatively correlated. The coexistence of different types of herding traders decreases the bias of stock price movement away from intrinsic value. Furthermore, the non-herding may decrease the market volatility, whereas the herding may increase. We also find that herding behavior and positive feedback buying strategy coexist before 1990s.

Keyword: Herding, Cross section standard deviation, Feedback trading.