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What drives the herding behavior of individual investors?

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Author Info

  • Maxime Merli

    (LARGE - Laboratoire de recherche en gestion et économie - Université de Strasbourg)

  • Tristan Roger

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

Abstract

This article intends to provide answers concerning what drives individual investor herding behavior. Our empirical study uses transaction records of 87,373 French individual investors for the period 1999-2006. In a Örst part, we show - using both the traditional Lakonishok et al. (1992) and the more recent Frey et al. (2007) measures - that herding is prevalent and strong among French individual investors. We then show that herding is persistent: stocks on which investors concentrate their trades at time t are more likely to be the stocks on which investors herd at time t+1. In a second part, we focus on the motivations of individual herding behavior. We introduce an investor speciÖc measure of herding which allows us to track the persistence in herding of individual investors. Our results highlight that this behavior is ináuenced by investor-speciÖc characteristics. We also reveal the fact that individual herding behavior is strongly and negatively linked with investorsíown past performance.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00658723.

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Date of creation: 2011
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Handle: RePEc:hal:journl:halshs-00658723

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Keywords: Herding behavior; investor;

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