Estimating a Structural Model of Herd Behavior in Financial Markets

Marco Cipriani and Antonio Guarino

American Economic Review, 2014, vol. 104, issue 1, 224-51

Abstract: We develop a new methodology to estimate herd behavior in financial markets. We build a model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using data on a NYSE stock (Ashland Inc.) during 1995. Herding occurs often and is particularly pervasive on some days. On average, the proportion of herd buyers is 2 percent; that of herd sellers is 4 percent. Herding also causes important informational inefficiencies in the market, amounting, on average, to 4 percent of the asset's expected value.

JEL-codes: C58 D82 D83 G12 G14 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.1.224
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Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Estimating a structural model of herd behavior in financial markets (2012)
Working Paper: Estimating a Structural Model of Herd Behavior in Financial Markets (2010)
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