Estimating a Structural Model of Herd Behavior in Financial Markets
Author | : Antonio Guarino |
Publisher | : International Monetary Fund |
Total Pages | : 35 |
Release | : 2010-12-01 |
ISBN-10 | : 9781455211692 |
ISBN-13 | : 1455211699 |
Rating | : 4/5 (92 Downloads) |
Download or read book Estimating a Structural Model of Herd Behavior in Financial Markets written by Antonio Guarino and published by International Monetary Fund. This book was released on 2010-12-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.