Research Shows Negative Effects of Following the Herd

Recent research from behavioral finance expert Professor Brad Barber at University of California, Davis, Graduate School of Management, indicates that following the herd produces negative results.

In a research paper entitled, Attention Induced Trading and Returns: Evidence from Robinhood Users (Barber, Huang, Odean and Schwarz) using data from May 2018 to August 2020, Professor Barber and colleagues studied Robinhood users herding around attention grabbing stocks in the news. 

  • They find that this attracts the attention of short-sellers betting against the herd and prices underperform the market by between 5% and 9% over the following month.

This is more evidence that to be a contrarian not a follower.

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