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What drives the herding behavior of individual investors?


  • Maxime Merli

    () (LaRGE Research Center, Université de Strasbourg)

  • Tristan Roger

    (EUROFIDAI-CERAG, Université de Grenoble)


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 ?first 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 specific measure of herding which allows us to track the persistence in herding of individual investors. Our results highlight that this behavior is influenced by investor-specifi?c characteristics. We also reveal the fact that individual herding behavior is strongly and negatively linked with investors own past performance.

Suggested Citation

  • Maxime Merli & Tristan Roger, 2011. "What drives the herding behavior of individual investors?," Working Papers of LaRGE Research Center 2011-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2011-03

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    Cited by:

    1. Frey, Stefan & Herbst, Patrick & Walter, Andreas, 2014. "Measuring mutual fund herding – A structural approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 219-239.
    2. Andrey Kudryavtsev, 2019. "Short-Term Herding Effect On Market Index Returns," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(01), pages 1-16, March.
    3. Saeed Ahmad Sabir & Hisham Bin Mohammad & Hanita Binti Kadir Shahar, 2019. "The Role of Overconfidence and Past Investment Experience in Herding Behaviour with a Moderating Effect of Financial Literacy: Evidence from Pakistan Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 480-490, April.
    4. Li, Wei & Rhee, Ghon & Wang, Steven Shuye, 2017. "Differences in herding: Individual vs. institutional investors," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 174-185.
    5. Tihana Škrinjarić, 2018. "Revisiting Herding Investment Behavior on the Zagreb Stock Exchange: A Quantile Regression Approach," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 3(2), pages 119-162, December.
    6. Bar-Gill, Sagit & Gandal, Neil, 2017. "Online Exploration, Content Choice & Echo Chambers: An Experiment," CEPR Discussion Papers 11909, C.E.P.R. Discussion Papers.

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    JEL classification:

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

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