Herd Behavior in Financial Markets

Marco Cipriani and Antonio Guarino

No 20150309, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Over the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader’s decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering as herd behavior. However, since decision clustering may be the result of something other than herding—such as the common reaction to public announcements—the existing empirical literature cannot distinguish “spurious” herding from “true” herd behavior.

Keywords: herd behavior; financial markets (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2015-03-09
New Economics Papers: this item is included in nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2015 ... nancial-markets.html Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:87015

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().