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Information Risk, Market Stress and Institutional Herding in Financial Markets: New Evidence Through the Lens of a Simulated Model

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

This paper employs numerical simulations of the Park and Sabourian (2011) herd model to derive new theory-based predictions for how information risk and market stress influence aggregate herding intensity. We test these predictions empirically using a comprehensive data set of highfrequency and investor-speci c trading data from the German stock market. Exploiting intra-day patterns of institutional trading behavior, we confirm that higher information risk increases both buy and sell herding. The model also explains why buy, not sell, herding is more pronounced during the financial crisis.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2014-029.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2014-029.

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Length: 42 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2014-029
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