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Institutional Herding in Financial Markets: New Evidence through the Lens of a Simulated Model

Author

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

Abstract

Due to data limitations and the absence of testable, model-based predictions, theory and evidence on herd behavior are only loosely connected. This paper contributes towards closing this gap in the herding literature. We use numerical simulations of a herd model to derive new, theory-based predictions for aggregate herding intensity. Using high-frequency, investor-specific trading data we confirm the predicted impact of information risk on herding. In contrast, the increase in buy herding measured for the financial crisis period cannot be explained by the herd model.

Suggested Citation

  • Christopher Boortz & Simon Jurkatis & Stephanie Kremer & Dieter Nautz, 2013. "Institutional Herding in Financial Markets: New Evidence through the Lens of a Simulated Model," Discussion Papers of DIW Berlin 1336, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1336
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    References listed on IDEAS

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    More about this item

    Keywords

    Herd Behavior; Institutional Trading; Model Simulation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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