Herding in Equity Crowdfunding

Thomas Astebro, Manuel Fernandez Sierra, Carlos Cadena-Silva and Nir Vulkan

Working papers from Red Investigadores de Economía

Abstract: Do equity crowdfunding investors rationally or irrationally herd? We build a model of rational information aggregation where both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. We compare the predictions of the model to several alternative models of irrational herding and no herding, and test those predictions using data on all investments on a leading European equity crowdfunding platform. We show empirically that the size and likelihood of a pledge is causally affected by the size of the most recent pledge, and by the time elapsed since the most recent pledge. These results are consistent with rational information aggregation, and inconsistent with naive herding, independent investments, and common information shocks. However, there is still room for negative information cascades to occur. Implications for platform design and regulatory actions are discussed.

Keywords: Equity crowdfunding; Herding (search for similar items in EconPapers)
JEL-codes: D81 D83 G11 G14 (search for similar items in EconPapers)
Pages: 65
Date: 2020-03
New Economics Papers: this item is included in nep-pay
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Working Paper: Herding in Equity Crowdfunding (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:rie:riecdt:34

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