Thirty years of herd behavior in financial markets: A bibliometric analysis

In this paper we investigate the effects of herding on asset price dynamics during continuous trading. We focus on the role of interaction among traders, and we investigate the dynamics emerging when we allow for a tendency to mimic the actions of other investors, that is, to engage in herd behavior. The model, built as amean fieldin a binary setting (buy/sell decisions of a risky asset), is expressed by a three-dimensional discrete dynamical system describing the evolution of the asset price, its expected price, and its excess demand. We show that such dynamical system can be reduced to a unidirectionally coupled system. In line with therational herd behaviorliterature [Bikhchandani, S., Sharma, S. (2000), Herd Behavior in Financial Markets: A Review. Working paper, IMF, WP/00/48], situations of multistability are observed, characterized by strongpath dependence; that is, the dynamics of the system are strongly influenced by historical accidents. We describe the different kinds of dynamic behavior observed, and we characterize the bifurcations that mark the transitions between qualitatively different time evolutions. Some situations give rise to high sensitivity with respect to small changes of the parameters and/or initial conditions, including the possibility ofinvest or reject cascades(i.e., sudden uncontrolled increases or crashes of the prices).

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Herd Behavior and Aggregate Fluctuations in Financial Markets

SSRN Electronic Journal ◽

10.2139/ssrn.58468 ◽

1998 ◽

Cited By ~ 6

Author(s):

Rama Cont ◽

Jean-Philippe Bouchaud

Keyword(s):

Financial Markets ◽

Herd Behavior ◽

Aggregate Fluctuations

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Estimating a Structural Model of Herd Behavior in Financial Markets

The American Economic Review ◽

10.1257/aer.104.1.224 ◽

2014 ◽

Vol 104 (1) ◽

pp. 224-251 ◽

Cited By ~ 41

Author(s):

Marco Cipriani ◽

Antonio Guarino

Keyword(s):

Financial Markets ◽

Structural Model ◽

Expected Value ◽

Herd Behavior ◽

Transaction Data ◽

Financial Transaction ◽

Information Event ◽

Event Uncertainty ◽

Using Data

We develop a new methodology to estimate herd behavior in financial markets. We build a model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using data on a NYSE stock (Ashland Inc.) during 1995. Herding occurs often and is particularly pervasive on some days. On average, the proportion of herd buyers is 2 percent; that of herd sellers is 4 percent. Herding also causes important informational inefficiencies in the market, amounting, on average, to 4 percent of the asset's expected value. (JEL C58, D82, D83, G12, G14)

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Herd Behavior and Financial Crashes: An Interacting Particle System Approach

Journal of Mathematics ◽

10.1155/2016/7510567 ◽

2016 ◽

Vol 2016 ◽

pp. 1-7 ◽

Cited By ~ 2

Author(s):

Vincenzo Crescimanna ◽

Luca Di Persio

Keyword(s):

Financial Markets ◽

Private Information ◽

Particle System ◽

Physical Models ◽

Herd Behavior ◽

Coupling Coefficients ◽

Market Returns ◽

Interacting Particle ◽

The Impact ◽

With Memory

We provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but not identical for each agent. By analogy with physical models, we consider thetemperatureparameter of the system, assuming that it evolves with memory of the past, hence considering how former news influences realized market returns. We show that a standard Ising potential assumption is not sufficient to reproduce the stylized facts characterizing financial markets; this is because it assigns low probabilities to rare events. Hence, we study a variation of the previous setting providing, also by concrete computations, new insights and improvements.

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