Junkai Wang
Better ways to test for herding
Wang, Junkai; Hudson, Robert
Abstract
In this article, we outline problems with the standard test for herding developed by Chang, Cheng and Kohrana (2000), subsequently called the CCK test, which is based on the proposition that the cross-sectional absolute deviation of stock returns (CSAD) should be linearly related to overall market returns. We show that the test is highly biased against finding herding. The bias arises because the test assumes that, in the absence of herding, stock prices follow the Capital Asset Pricing Model (CAPM) but does not account for the implications of the CAPM not being a perfect asset pricing model. We suggest several simple alternative tests for herding. Finally, we show that the new tests give radically different results to the CCK test finding herding in many of the world's major financial markets when the CCK test rejects herding.
Citation
Wang, J., & Hudson, R. (2022). Better ways to test for herding. International journal of finance & economics : IJFE, https://doi.org/10.1002/ijfe.2707
Journal Article Type | Article |
---|---|
Acceptance Date | Sep 11, 2022 |
Online Publication Date | Sep 27, 2022 |
Publication Date | 2022 |
Deposit Date | Sep 13, 2022 |
Publicly Available Date | Sep 28, 2024 |
Journal | International Journal of Finance and Economics |
Print ISSN | 1076-9307 |
Electronic ISSN | 1099-1158 |
Publisher | Wiley |
Peer Reviewed | Peer Reviewed |
DOI | https://doi.org/10.1002/ijfe.2707 |
Public URL | https://hull-repository.worktribe.com/output/4076132 |
Files
This file is under embargo until Sep 28, 2024 due to copyright reasons.
Contact Robert.Hudson@hull.ac.uk to request a copy for personal use.
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