An empirical investigation of herding in the U.S. stock market

Adam Clements*, Stan Hurn, Shuping Shi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

22 Citations (Scopus)
10 Downloads (Pure)


This paper proposes a new empirical testing method for detecting herding in stock markets. The traditional regression approach is extended to a vector autoregressive framework, in which the predictive power of squared index returns for the cross-sectional dispersion of equity returns is tested using a Granger causality test. Macroeconomic news announcements and the aggregate number of firm-level news items are treated as conditioning variables, while the average sentiment of firm-level news is treated as jointly determined. The testing algorithm allows the change points in the causal relationships between the cross-sectional dispersion of returns and squared index returns to be determined endogenously rather than being chosen arbitrarily a priori. Evidence of herding is detected in the constituent stocks of the Dow Jones Industrial Average at the onset of the subprime mortgage crisis, during the European debt and the U.S. debt-ceiling crises and the Chinese stock market crash of 2015. These results contrast with those obtained from the traditional methods where little evidence of herding is found in the US stock market.

Original languageEnglish
Pages (from-to)184-192
Number of pages9
JournalEconomic Modelling
Publication statusPublished - Dec 2017


  • Granger causality
  • Herding
  • News
  • Predictability
  • Sentiment


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