Investors’ Exposure Rating and Stock Returns

Abstract

This study examines whether investments based on herd behavior can outperform the market. It utilizes an investment exposure rating system calculated as the percentage of “clicks” on a specific stock banner on a popular business portal. Comparing the returns of a portfolio that consisted of the ten most “clicked” stocks to the returns of the stocks on the Tel Aviv 100 index (TA100) showed that the clicked portfolio did not outperform the index during the examined period. Moreover, a high exposure rating was negatively correlated with returns and positively correlated with higher risk. These results strengthen the hypothesis that investment based on herd behavior is not a winning strategy.

Keywords:

• Exposure
• Rating
• Abnormal return