Measuring herding intensity: a hard task
This paper addresses the traditional Lakonishok, Shleifer and Vishny (LSV) herding measure and points out its lack of internal consistency. Frey, Herbst and Walter (2007) have shown by empirical simulations that LSV is biased. We provide a formal explanation of this bias and propose a more appropriate measure of herding. We then turn to the properties of the new indicator proposed by Frey, Herbst and Walter (2007): we show that it is accurate only under very strong assumptions, and propose a corrected version of their indicator. We also show that the real herding value is within an interval bounded by LSV and FHW. Finally, as both corrected measures require a prior knowledge of some parameters of the distribution, we conclude that measuring accurately herding intensity is a much more difficult task than considered up to now in the empirical literature.
|Date of creation:||15 Jun 2010|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00517610|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sam Wylie, 2005. "Fund Manager Herding: A Test of the Accuracy of Empirical Results Using U.K. Data," The Journal of Business, University of Chicago Press, vol. 78(1), pages 381-403, January.
- Hwang, Soosung & Salmon, Mark, 2004.
"Market Stress and Herding,"
CEPR Discussion Papers
4340, C.E.P.R. Discussion Papers.
- Demirer, RIza & Kutan, Ali M., 2006. "Does herding behavior exist in Chinese stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 123-142, April.
- Svitlana Voronkova & Martin T. Bohl, 2005. "Institutional Traders' Behavior in an Emerging Stock Market: Empirical Evidence on Polish Pension Fund Investors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1537-1560.
- Eduardo Borensztein & R. Gaston Gelos, 2003.
"A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds,"
IMF Staff Papers,
Palgrave Macmillan, vol. 50(1), pages 3.
- Gaston Gelos & Eduardo Borensztein, 2000. "A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds," IMF Working Papers 00/198, International Monetary Fund.
- Eduardo R. Borensztein & R. Gaston Gelos, 2001. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," CESifo Working Paper Series 564, CESifo Group Munich.
- 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.
- 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.
- Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets: A Review," IMF Working Papers 00/48, International Monetary Fund.
- Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, 04.
- Gleason, Kimberly C. & Mathur, Ike & Peterson, Mark A., 2004. "Analysis of intraday herding behavior among the sector ETFs," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 681-694, December.
- Andreas Walter & Friedrich Moritz Weber, 2006. "Herding in the German Mutual Fund Industry," European Financial Management, European Financial Management Association, vol. 12(3), pages 375-406.
- Chang, Eric C. & Cheng, Joseph W. & Khorana, Ajay, 2000. "An examination of herd behavior in equity markets: An international perspective," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1651-1679, October.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00517610. 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: (CCSD)
If references are entirely missing, you can add them using this form.