Herding in Equity Crowdfunding

71 Pages Posted: 8 Dec 2017 Last revised: 1 Oct 2020

See all articles by Thomas B. Astebro

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

Manuel Fernández Sierra

Universidad de Los Andes; IZA

Stefano Lovo

HEC Paris - Finance Department

Nir Vulkan

University of Oxford - Said Business School

Date Written: June 18, 2019

Abstract

Do equity crowdfunding investors rationally or irrationally herd? We build a model of rational information aggregation where both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. We compare the predictions of the model to several alternative models of irrational herding and no herding, and test those predictions using data on all investments on a leading European equity crowdfunding platform. We show empirically that the size and likelihood of a pledge is causally affected by the size of the most recent pledge, and by the time elapsed since the most recent pledge. These results are consistent with rational information aggregation, and inconsistent with naive herding, independent investments, and common information shocks. However, there is still room for negative information cascades to occur. Implications for platform design and regulatory actions are discussed.

Keywords: Equity Crowdfunding, Herding

JEL Classification: D81, D83, G11, G14

Suggested Citation

Astebro, Thomas B. and Fernández Sierra, Manuel and Lovo, Stefano and Vulkan, Nir, Herding in Equity Crowdfunding (June 18, 2019). Paris December 2018 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=3084140 or http://dx.doi.org/10.2139/ssrn.3084140

Thomas B. Astebro (Contact Author)

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

Manuel Fernández Sierra

Universidad de Los Andes ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+57 (1) 339 4949 Ext. 5025 (Phone)

HOME PAGE: http://https://sites.google.com/view/manuelfernandezsierra

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Stefano Lovo

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Nir Vulkan

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 01865 288929, or 288338 (Phone)
+44 01865 288805 (Fax)

HOME PAGE: https://vulkan.worc.ox.ac.uk/

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