This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. January 2014
  5. Estimating a Structural Model of Herd Behavior in Financial Markets

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Estimating a Structural Model of Herd Behavior in Financial Markets

  • Marco Cipriani
  • Antonio Guarino
American Economic Review
vol. 104, no. 1, January 2014
(pp. 224–51)
Download Full Text PDF

Abstract

We develop a new methodology to estimate herd behavior in financial markets. We build a 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 occurs often and is particularly pervasive on some days. On average, the proportion of herd buyers is 2 percent; that of herd sellers is 4 percent. Herding also causes important informational inefficiencies in the market, amounting, on average, to 4 percent of the asset's expected value.

Citation

Cipriani, Marco, and Antonio Guarino. 2014. "Estimating a Structural Model of Herd Behavior in Financial Markets." American Economic Review, 104 (1): 224–51. DOI: 10.1257/aer.104.1.224

Additional Materials

JEL Classification

  • C58 Financial Econometrics
  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief
  • G12 Asset Pricing; Trading Volume; Bond Interest Rates
  • G14 Information and Market Efficiency; Event Studies; Insider Trading