Herd Behavior in Financial Markets: A Review

By Sushil Bikhchandani, Sunil K. Sharma. Social Science Research Network, 2000

484 citations recorded by the source corpus.

Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/c40780e28d126413a40267b8561d17c834685941

Citations in the corpus

• Information cascades: Evidence from a field experiment with financial market professionals (2005, unknown): “Bikhchandani and Sharma (2000) review the extant regression-based results for herding in financial markets but note the difficulty of controlling for underlying fundamentals.”
• Does herding behavior exist in Chinese stock markets (2006, unknown): “Bikhchandani and Sharma (2000) define herd behavior as an obvious intent by investors to copy the behavior of other investors.”
• Corporate Finance Policies and Social Networks (2017, unknown): “Such conjecture is supported by a vast literature in economics and sociology (see for example Bikhchandani and Sharma (2000) for a review of herding behavior in financial markets).”
• Investor herding behaviour of Chinese stock market (2014, unknown): “Bikhchandani and Sharma (2000) emphasize the distinction between intentional herding, which results from an obvious intent by investors to imitate others, and spurious herding, in which groups of investors facing similar decision problems and information sets take similar decisions.”
• Online Social Interactions: A Natural Experiment on Word of Mouth versus Observational Learning (2011, unknown): “…the information cascade theory suggests that positive (negative) OL can potentially increase (decrease) adoption (Bikhchandani, Hirshleifer, and Welch 1992; Bikhchandani and Sharma 2001; Welch 1992), the literature has provided few insights into whether the valence of OL has an asymmetric effect.”
• Dependence patterns across financial markets: a mixed copula approach (2006, unknown): “In general, financial contagions can be explained by financial links including herding behaviour and fear-based spillover (Allen and Gale, 2000; Bikhchandani and Sharma, 2001); by real links including trading and production (Abeysinghe and Forbes, 2002; Corsettia et al., 2003); and by political…”
• Herding in the German Mutual Fund Industry (2006, unknown): “Thus, there are complaints about the lack of a direct link between the theoretical and empirical literature (Bikhchandani and Sharma, 2000).”
• Why Do Firms Imitate Each Other (2006, unknown): “(Bikhchandani and Sharma, 2001; Hirshleifer and Teoh, 2001).”
• Does Culture Influence Asset Managers? Views and Behavior? (2008, unknown): “We analyze asset managers’ behavior in this dimension by taking a closer look at their trend following or so-called “herding” behavior, a phenomenon that remains highly discussed in both academics and practice and yet cannot be totally explained by rational motives (Bikhchandani and Sharma 2001).”