Institutional Herding in Financial Markets: New Evidence through the Lens of a Simulated Model
AbstractDue to data limitations and the absence of testable, model-based predictions, theory and evidence on herd behavior are only loosely connected. This paper contributes towards closing this gap in the herding literature. We use numerical simulations of a herd model to derive new, theory-based predictions for aggregate herding intensity. Using high-frequency, investor-specific trading data we confirm the predicted impact of information risk on herding. In contrast, the increase in buy herding measured for the financial crisis period cannot be explained by the herd model.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1336.
Length: 40 p.
Date of creation: 2013
Date of revision:
Herd Behavior; Institutional Trading; Model Simulation;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-06 (All new papers)
- NEP-CMP-2013-12-06 (Computational Economics)
- NEP-MST-2013-12-06 (Market Microstructure)
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