Herd Behavior and Cascading in Capital Markets: A Review and Synthesis
Dice Center Working Paper No. 2001-20
58 Pages Posted: 10 Jan 2002
Date Written: December 19, 2001
We review theory and evidence relating to herd behavior, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behavior of investors, firms, and analysts. We consider both incentives for parties to engage in herding or cascading, and the incentives for parties to protect against or take advantage of herding or cascading by others.
JEL Classification: G11, G12, G14, G15, G31, M41
Suggested Citation: Suggested Citation