Information risk, market stress and institutional herding in financial markets: New evidence through the lens of a simulated model

Christopher Boortz, Stephanie Kremer, Simon Jurkatis and Dieter Nautz

No 2014-029, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: This paper employs numerical simulations of the Park and Sabourian (2011) herd model to derive new theory-based predictions for how information risk and market stress influence aggregate herding intensity. We test these predictions empirically using a comprehensive data set of highfrequency and investor-speci c trading data from the German stock market. Exploiting intra-day patterns of institutional trading behavior, we confirm that higher information risk increases both buy and sell herding. The model also explains why buy, not sell, herding is more pronounced during the financial crisis.

Keywords: Herd behavior; information risk; financial crisis; institutional trading; model simulation; Bootstrap; expectile regression; Goodness-of-fit tests; quantile treatment effect; smoothing and nonparametric regression (search for similar items in EconPapers)
JEL-codes: D81 D82 G14 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2014-029

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