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Institutional herding in financial markets: New evidence through the lens of a simulated model

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  • Boortz, Christopher
  • Jurkatis, Simon
  • Kremer, Stephanie
  • Nautz, Dieter

Abstract

Due 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, investorspecific 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.

Suggested Citation

  • Boortz, Christopher & Jurkatis, Simon & Kremer, Stephanie & Nautz, Dieter, 2014. "Institutional herding in financial markets: New evidence through the lens of a simulated model," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100455, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100455
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    2. Al-Jarhi, Mabid Ali M. M., 2016. "An Economic Theory of Islamic Finance Regulation," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 24, pages 1-44.

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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