Herding Among Investment Newsletters: Theory and Evidence

Duke University Working Paper 9714

51 Pages Posted: 16 Jun 1998

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 9, 1998


A model is developed that implies that if an analyst has high reputation or low ability, or if there is strong public information that is inconsistent with the analyst's private information, she is likely to herd. Herding is also common when informative private signals are positively correlated across analysts. The model is tested using data from analysts who publish investment newsletters. Consistent with the model's implications, the empirical results indicate that a newsletter analyst is likely to herd on Value Line's recommendation if her reputation is high, if her ability is low, or if signal correlation is high. Recommendations are made about how to test herding models.

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JEL Classification: G12, G14, G31

Suggested Citation

Graham, John Robert, Herding Among Investment Newsletters: Theory and Evidence (February 9, 1998). Duke University Working Paper 9714, Available at SSRN: https://ssrn.com/abstract=99048 or http://dx.doi.org/10.2139/ssrn.99048

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