IDEAS home Printed from https://ideas.repec.org/a/eee/finsta/v5y2009i1p35-56.html
   My bibliography  Save this article

Herding behavior in asset markets

Author

Listed:
  • Hott, Christian

Abstract

This paper examines the origins of herding behavior in asset markets and its potential to produce a price bubble. I present a model which explains the emergence and the development of herding behavior via asymmetric information and Baysian learning. A corresponding price bubble is explained through herding behavior without assuming any speculative incentives on the part of the investors.

Suggested Citation

  • Hott, Christian, 2009. "Herding behavior in asset markets," Journal of Financial Stability, Elsevier, vol. 5(1), pages 35-56, January.
  • Handle: RePEc:eee:finsta:v:5:y:2009:i:1:p:35-56
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1572-3089(08)00013-2
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
    2. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    3. Jeremy J. Siegel, 2003. "What Is an Asset Price Bubble? An Operational Definition," European Financial Management, European Financial Management Association, vol. 9(1), pages 11-24.
    4. Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
    5. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Intrinsic Bubbles: The Case of Stock Prices," American Economic Review, American Economic Association, vol. 81(5), pages 1189-1214, December.
    6. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 2006. "Feedback and the success of irrational investors," Journal of Financial Economics, Elsevier, vol. 81(2), pages 311-338, August.
    7. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-748, September.
    8. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
    9. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
    10. Romer, David, 1993. "Rational Asset-Price Movements without News," American Economic Review, American Economic Association, vol. 83(5), pages 1112-1130, December.
    11. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    12. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    13. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-896, July.
    14. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
    15. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
    16. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
    17. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    18. Sendhil Mullainathan, 2002. "A Memory-Based Model of Bounded Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 735-774.
    19. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Duca, John V. & Muellbauer, John & Murphy, Anthony, 2010. "Housing markets and the financial crisis of 2007-2009: Lessons for the future," Journal of Financial Stability, Elsevier, vol. 6(4), pages 203-217, December.
    2. Jacob Macdonald & Sofia Franco, 2015. "The Effects of Tangible Immovable Cultural Heritage on Residential Property Values: Evidence from Lisbon, Portugal," ERSA conference papers ersa15p657, European Regional Science Association.
    3. Adams, Zeno & Füss, Roland & Gropp, Reint, 2014. "Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(03), pages 575-598, June.
    4. Kurz, Claudia & Kurz-Kim, Jeong-Ryeol, 2013. "What determines the dynamics of absolute excess returns on stock markets?," Economics Letters, Elsevier, vol. 118(2), pages 342-346.
    5. Wang, Yudong & Liu, Li & Gu, Rongbao & Cao, Jianjun & Wang, Haiyan, 2010. "Analysis of market efficiency for the Shanghai stock market over time," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1635-1642.
    6. M. Fern'andez-Mart'inez & M. A S'anchez-Granero & Mar'ia Jos'e Mu~noz Torrecillas & Bill McKelvey, 2016. "A comparison among some Hurst exponent approaches to predict nascent bubbles in $500$ company stocks," Papers 1601.04188, arXiv.org.
    7. Lao, Paulo & Singh, Harminder, 2011. "Herding behaviour in the Chinese and Indian stock markets," Journal of Asian Economics, Elsevier, vol. 22(6), pages 495-506.
    8. King, Michael R. & Maier, Philipp, 2009. "Hedge funds and financial stability: Regulating prime brokers will mitigate systemic risks," Journal of Financial Stability, Elsevier, vol. 5(3), pages 283-297, September.
    9. Moatemri Ouarda & Abdelfatteh El Bouri & Olivero Bernard, 2013. "Herding Behavior under Markets Condition: Empirical Evidence on the European Financial Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 214-228.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finsta:v:5:y:2009:i:1:p:35-56. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jfstabil .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.