What Drives the Herding Behavior of Individual Investors?
Finance, 34(3), 2013
41 Pages Posted: 25 Jul 2011 Last revised: 20 Oct 2017
Date Written: December 1, 2013
We introduce a new measure of herding that allows for tracking dynamics of individual herding. Using a database of over 8 million trades by 87,373 retail investors between 1999 and 2006, we show in an original way that individual herding is persistent over time and that past performance and the level of sophistication influence this behavior. We are also able to answer a question that was previously unaddressed in the literature: is herding profitable for investors? We demonstrate, as a primary result, that the investors trading against the crowd tend to exhibit more extreme returns and poorer risk-adjusted performance than the herders.
Keywords: Herding Behavior, Individual Investors, Sophistication, Performance
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Herd Behavior and Cascading in Capital Markets: A Review and Synthesis
Transparency and International Portfolio Holdings
By Gaston Gelos and Shang-jin Wei
Managers, Investors, and Crises: Mutual Fund Strategies in Emerging Markets
By Graciela Kaminsky, Richard K. Lyons, ...