This study proposes a new measure and test of herding which is based on the crosssectional dispersion of factor sensitivity of assets within a given market. This new measure enables us to evaluate the directions towards which the market may be herding and separate these from movements in fundamentals. We apply the test to an analysis of the US, UK, and South Korean stock markets and somewhat surprisingly, find statistically significant evidence of herding towards ”the market portfolio” during relatively quiet periods rather than when the market is under stress. The approach also allows us to investigate herding towards other factors beyond the market factor and we find that the US market shows significant herding towards “value” after the Russian Crisis in 1998
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