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Herd Behavior in Financial Markets: A Review

Sunil Sharma () and Sushil Bikhchandani

No 2000/048, IMF Working Papers from International Monetary Fund

Abstract: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?

Keywords: WP; research effort; type f investor; mutual fund; large cap; herd behavior; momentum strategies; financial markets; benchmark investor; profit-maximizing investor; non-resident investor; agent investor; adverse selection; investors H; risk-averse investor; type D investor; company stock; Stocks; Mutual funds; Stock markets; Asset prices; Asset valuation (search for similar items in EconPapers)
Pages: 32
Date: 2000-03-01
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