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Information risk, market stress and institutional herding in financial markets: New evidence through the lens of a simulated model

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Listed:
  • Boortz, Christopher
  • Kremer, Stephanie
  • Jurkatis, Simon
  • Nautz, Dieter

Abstract

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.

Suggested Citation

  • Boortz, Christopher & Kremer, Stephanie & Jurkatis, Simon & Nautz, Dieter, 2014. "Information risk, market stress and institutional herding in financial markets: New evidence through the lens of a simulated model," SFB 649 Discussion Papers 2014-029, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2014-029
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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