Investing Research Articles

Does technology amplify adverse herding among inexperienced investors? In their October 2020 paper entitled “Attention Induced Trading and Returns: Evidence from Robinhood Users”, Brad Barber, Xing Huang, Terrance Odean and Christopher Schwarz test the relationship between episodes of intense stock buying by retail (Robinhood) investors and future returns. Their source for buying intensity is the… Keep Reading

…investor and analyst herding and cascading help explain some observed stock market price phenomena.

Is there evidence of investor herding in the variation of return correlations for individual stocks? In their January 2011 paper entitled “Asymmetric Correlations”, Tarun Chordia, Amit Goyal and Qing Tong investigate when and why return correlations for individual stocks vary over time. At the end of each month, they calculate average pairwise correlations of stocks… Keep Reading

…institutional herding on hope and fear drives overvaluation (undervaluation) of growth (value) stocks, leading to their future reversals of fortune.

…Professor Sornette’s attempt to model one equity market via diligent analysis of similarities to another equity market during a different time does not work, perhaps because the model is simplistically behavioral or because randomness dominates predictability.

What are the implications of rapid global adoption of factor (smart beta) investing in single-factor, multi-factor and dynamic multi-factor strategies, most notably via equity exchange-traded funds (ETF). In their September 2018 paper entitled “Smart-Beta Herding and Its Economic Risks: Riding the Dragon?”, Eduard Krkoska and Klaus Schenk-Hoppé summarize the current state of smart beta investing, providing a… Keep Reading

Are there internal or external signals that predict financial market panic attacks? In the February 2011 revision of their paper entitled “Predicting Economic Market Crises Using Measures of Collective Panic” (flagged by a reader), Dion Harmon, Marcus de Aguiar, David Chinellato, Dan Braha, Irving Epstein and Yaneer Bar-Yam investigate whether indications of the interplay between… Keep Reading

James Weatherall, physicist, mathematician and philosopher, introduces his 2012 book, The Physics of Wall Street: A Brief History of Predicting the Unpredictable, by stating: “This book tells the story of physicists in finance. …It is about how the quants came to be, and about how to understand the ‘complex mathematical models’ that have become central to modern finance.”… Keep Reading

Do investors under stress herd, thereby driving return correlations upward? In their October 2012 paper entitled “Quantifying the Behavior of Stock Correlations Under Market Stress”, Tobias Preis, Dror Kenett, Eugene Stanley, Dirk Helbing and Eshel Ben-Jacob relate average stock return correlations to stock market conditions with focus on dramatic market losses. Specifically, they calculate the average Pearson… Keep Reading

Does the low-risk stock anomaly hold for China A shares, dominated by local private investors rather than institutions and characterized by high volatility and herding? In their January 2021 paper entitled “The Volatility Effect in China”, David Blitz, Matthias Hanauer and Pim van Vliet examine the performance of low-volatility China A shares. At the end… Keep Reading