Figure 7 Returns of Portfolios Formed on Standardized Betas Following the Formation

2 Average Returns of the Decile portfolios 1.5 1 0.5 0 Low -0.5 -1 Unconditional Average Returns - Standardized Beta with 4 factor Model Unconditional Average Returns - OLS Beta with 4 factor Model Unconditional Average Returns - Standardized Beta with Market Model Unconditional Average Returns - OLS Beta with Market Model 2 3 4 5 6 7 8 9

Low Herding minus High Herding - Standardized Beta with 4 Factor Model Low Herding minus High Herding - OLS Beta with 4 Factor Model Low Herding minus High Herding - Standardized Beta with Market Model Low Herding minus High Herding - OLS Beta with Market Model

Using two different models (four factor model and market model) and two estimates of betas (OL betas and standardized betas) as in Table 2, each month we form decile portfolios for each of thes We apply the same filtering methods as in Table 2 to remove illiquid individual stocks. For portfolios we calculate equally weighted returns in the following month. We repeat the pro January 1967 to May 2011 to obtain 533 monthly returns from February 1967 to June 2011. Fo difference between low herding and high herding, herd measure is first calculated for each of the fou then three herding states are first identified for each herd measure, i.e., herding (bottom 30% of he no herding (middle 40% of herd measure), and adverse herding (top 30% of herd measure). The dec returns are grouped into three depending on the previous month's herding state.

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