41 Pages Posted: 25 Jul 2011 Last revised: 20 Oct 2015
Date Written: June 26, 2012
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
Merli, Maxime and Roger, Tristan, What Drives the Herding Behavior of Individual Investors? (June 26, 2012). Available at SSRN: https://ssrn.com/abstract=1895026 or http://dx.doi.org/10.2139/ssrn.1895026