Herding During the Stock Market Bubble: An Intraday Analysis
43 Pages Posted: 8 May 2015 Last revised: 21 May 2015
Date Written: May 4, 2015
This paper tests for the presence of herding on the New York Stock Exchange (NYSE). We measure the degree of herding from 1998-2001, the “bubble” period and its collapse. We estimate the incidence of herding by applying a test of serial independence in the observed interarrival times of trades. Our first and the most important finding is that the NYSE appears to function efficiently for the most part. However, the market does show some evidence of systemic herding. Second, the herding tends to be confined to larger stocks. Third, we find a weak negative relationship between dispersion of opinion among investors and herding measures. A noteworthy aspect of the analysis is that the data is analyzed using two different herding tests, and the results of the tests are compared using the Cochran-Mantel-Haenszel test for repeated tests of independence.
Keywords: Herding; Intraday trading; Market efficiency
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation