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The impact of information risk and market stress on institutional trading: New evidence through the lens of a simulated herd model

Author

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

Abstract

This paper sheds new light on the impact of information risk and market stress on herding of institutional traders from both, a theoretical and an empirical perspective. Using numerical simulations of a herd model, we show that buy and sell herding intensity should increase with information risk. Market stress should affect herding asymmetrically: while there is more sell herding when the market becomes more pessimistic and more uncertain, buy herding intensity should decrease. We test these predictions using intra-day herding measures based on high-frequent, investor-specific trading data of all institutional investors in the German stock market. The evidence provides strong support for an increasing effect of information risk on herding intensity on an intra-day basis. However, in contrast to the simulation results empirical herding measures indicate that buy herding has even slightly increased, not decreased, during the recent crisis period.

Suggested Citation

  • Boortz, Christopher K. & Jurkatis, Simon & Kremer, Stephanie & Nautz, Dieter, 2013. "The impact of information risk and market stress on institutional trading: New evidence through the lens of a simulated herd model," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79728, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79728
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    References listed on IDEAS

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    1. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, May.
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    6. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, May.
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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