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Measuring Stock Herding from Intraday Trades as a Selection Factor

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Summary

This research summary describes a stock-selection factor based on herding behavior in China’s A-share market. It applies the LSV model to intraday high-frequency trade records, distinguishing aggressive buyers from sellers to estimate their relative strength for each stock. The proposed factor is intended to add information beyond traditional financial statement and lower-frequency price-volume measures, whose incremental value the report says may be diminishing.

The summary reports that the factor differentiated returns across the broad market and several index constituent universes, with generally monotonic returns across factor groups. In weekly rebalanced tests, the full-market factor had a reported mean IC of 0.047 and positive IC frequency of 69.90% since 2007. A long portfolio hedged against the CSI 500 had reported annualized return of 24.61%, volatility of 9.30%, and information ratio of 2.59; applying winsorization, neutralization, and standardization modestly improved the stated results. These are historical backtest findings, not guarantees, and the source cautions that future market conditions may differ.

Key ideas

  • The factor uses intraday trades to estimate herding with the LSV model.
  • Trade direction is used to compare the relative strength of buyers and sellers.
  • The report evaluates factor behavior across multiple Chinese equity universes.
  • Weekly rebalanced backtests report return discrimination and portfolio statistics.
  • Winsorization, neutralization, and standardization are reported to improve results, but historical findings may not persist.

Tags

EquitiesChina marketsHigh-frequency tradingMarket microstructureFactor investing

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.