This paper documents that retail investors herd at the industry level. Industry level herding is distinct from firm level herding and persists even after controlling for herding into stocks with similar size and book to market ratios. Moreover, retail investor industry herding forecasts industry returns. Over weekly horizons, industries heavily bought by retail investors significantly outperform industries heavily sold by retail investors, while over yearly horizons industries heavily bought by

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... retail investors significantly underperform industries heavily sold by retail investors. We decompose the poor performance of retail trades documented by Zhu (2008) and Hvidkjaer (2008) and estimate that roughly 60% is due to poor industry selection. Taken together, our results suggest that retail investors categorize stocks by industry and that industry wide sentiment contributes significantly to the poor performance of retail investors.