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What drives the herding behavior of individual investors?

Author

Listed:
  • Maxime Merli

    (LARGE - Laboratoire de recherche en gestion et économie - UNISTRA - Université de Strasbourg - L'europe en mutation : histoire, droit, économie et identités culturelles - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique)

  • Tristan Roger

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Maxime Merli & Tristan Roger, 2011. "What drives the herding behavior of individual investors?," Post-Print halshs-00658723, HAL.
    • Handle: RePEc:hal:journl:halshs-00658723
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00658723v2
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    Keywords

    Herding behavior; investor;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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