Book

Herding Behavior and Momentum explores a fundamental question in behavioural finance: are momentum profits partly driven by the tendency of investors to follow one another? Momentum describes the tendency for recent stock winners to continue outperforming recent losers. Herding, meanwhile, occurs when investors make more similar trading decisions than would be expected if they were acting independently. This book brings these two ideas together and examines whether investor herding could help explain how momentum forms, strengthens, and eventually reverses. The proposed research framework investigates three central questions. Are herding levels higher among extreme momentum portfolios? Does previously observed herding contain information about subsequent momentum returns after controlling for other factors? And can a breakdown in winner-specific herding help explain the eventual reversal of momentum? The study proposes an empirical design using U.S. common-stock data from CRSP, supplemented by Compustat, I/B/E/S, and institutional 13F holdings. It combines momentum portfolio construction with established measures of herding, including CSAD and an institutional trading measure based on the Lakonishok, Shleifer and Vishny framework. Written for both research-oriented readers and finance students, the book explains the concepts, equations, portfolio construction rules, and econometric tests in accessible language. Practical scenarios and worked examples are included to show how the proposed framework could be interpreted in real-world investment settings. Importantly, this is a pre-specified research design, not a report of completed empirical findings. The book does not present fabricated coefficients, p-values, or conclusions. Instead, it sets out precisely what evidence would support or weaken each hypothesis.