Herd Behaviour and Cascading in Capital Markets: A Review and Synthesis

42 Pages Posted: 18 Mar 2003

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Siew Hong Teoh

University of California, Irvine - Accounting Area

Abstract

We review theory and evidence relating to herd behaviour, 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 behaviour 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.

Keywords: Herd Behaviour, Informational Cascades, Social Learning, Analyst Herding, Capital Markets, Financial Reporting, Behavioral Finance, Investor Psychology, Market Efficiency

JEL Classification: D8, F3, G1, G3, G21

Suggested Citation

Hirshleifer, David A. and Teoh, Siew Hong, Herd Behaviour and Cascading in Capital Markets: A Review and Synthesis. European Financial Management, Vol. 9, pp. 25-66, 2003. Available at SSRN: https://ssrn.com/abstract=388486

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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