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Estimating a Structural Model of Herd Behavior in Financial Markets

We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the m...

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Bibliographic Details
Main Author: Guarino, Antonio
Other Authors: Cipriani, Marco
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2010
Series:IMF Working Papers
Subjects:
Inflation
Institutional Investors
Stock Exchanges
Balance Of Trade
Stocks
Pension Funds
Asset Valuation
Finance
Financial Instruments
Deflation
Trade Balance
Exports And Imports
General Financial Markets: General (includes Measurement And Data)
Asymmetric And Private Information
International Economics
Asset Prices
International Financial Markets
Estimation
Non-bank Financial Institutions
Price Level
Stock Markets
Investments: Stocks
Asset-liability Management
Prices
Macroeconomics
Information And Market Efficiency
Investment & Securities
Event Studies
Empirical Studies Of Trade
Financial Risk Management
Finance: General
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using data on a NYSE stock (Ashland Inc.) during 1995. Herding often arises and is particularly pervasive on some days. The proportion of herd buyers (sellers) is 2 percent (4 percent) and is greater than 10 percent in 7 percent (11 percent) of information-event days. Herding causes important informational inefficiencies, amounting, on average, to 4 percent of the expected asset value
Physical Description:33 pages
ISBN:9781455211692

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