Herding and information based trading

This paper expands on the existing literature on information asymmetry by testing if herding exists. We test herd behavior in a transparent and order-driven market using intraday data. We propose (1) a modification in the herding measure, (2) that investors tend to herd more based on fundamental ana...

Full description

Saved in:
Bibliographic Details
Published in:Journal of empirical finance 2009-06, Vol.16 (3), p.388-393
Main Authors: Zhou, Rhea Tingyu, Lai, Rose Neng
Format: Article
Language:English
Subjects:
Asymmetric information
Herding
Herding Information based trading Informational cascades
Information based trading
Informational cascades
Investors
Stock exchange
Strategic behaviour
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper expands on the existing literature on information asymmetry by testing if herding exists. We test herd behavior in a transparent and order-driven market using intraday data. We propose (1) a modification in the herding measure, (2) that investors tend to herd more based on fundamental analysis relative to technical analysis, and (3) that informational asymmetry can be identified by applying the informational cascade model to herding. In general, our analyses agree with the existing literature that herding tends to be more prevalent with small stocks and in economic downturns and that investors are more likely to herd when selling rather than buying stocks. Most importantly, our results reveal the existence of informational cascades, which highlights the crucial role played by so-called fashion leaders, especially when more informed investors trade with “noise”.
ISSN:0927-5398
1879-1727
DOI:10.1016/j.jempfin.2009.01.004