Correlated Trades and Herd Behavior in the Stock Market
Stephanie Kremer and
Dieter Nautz ()
No SFB649DP2012-035, SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649
Herd behavior is often viewed as a signi cant threat for the stability and eciency of nancial markets. This paper sheds new light on the relevance of herd behavior for observed correlation of trades. We introduce numerical simulations of a herd model to derive theory-guided predictions regarding the impact of various aspects of uncertainty on herding intensity. We test the predictions using a novel data set including all real-time transactions of institutional investors in the German stock market. In light of the model simulations, empirical results strongly suggest that the observed correlation of trades is mainly due to the common reaction of investors to new public information and should not be misinterpreted as herd behavior.
Keywords: Herd Behavior; Institutional Trading; Correlated Trading; Model Simulation (search for similar items in EconPapers)
JEL-codes: G11 G24 C23 (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-cmp
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Persistent link: https://EconPapers.repec.org/RePEc:hum:wpaper:sfb649dp2012-035
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