Market stress and herding

Hwang, Soosung; Salmon, Mark

doi:10.1016/j.jempfin.2004.04.003

Cited by 547 publications

(681 citation statements)

References 34 publications

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“…In general, our results are inconsistent with studies Choe et al (1999); (Lobao & Serra, 2007) that document that herding decreases in bad market periods. Our results are also inconsistent with Hwang and Salmon (2004), who find reduced herding during the Asian and Russian crises, and Christie and Huang (1995), who do not find significant herding during down markets. However, higher buy-herding during down market periods and higher sell-herding during market downturns is consistent with the findings of Choe et al (1999).…”

Section: Do Herds Emerge and Become Dominant In Times Of High Price Mcontrasting

confidence: 99%

“…Inclusion of a longer sample period and the implicit presence of financial turmoil in their data samples could be the driving force behind the higher levels of herding in their findings. Choe, Kho, and Stulz (1999) document decreased herding and feedback trading during the Korean economic distress (1996)(1997), while Hwang and Salmon (2004) find herding levels reduced during the Asian and Russian crises. Moreover, financial commentators have often claimed that herding has increased over time, but they have not yet found any empirical support for their claims.…”

Section: Literature Reviewmentioning

confidence: 99%

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What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?

Rubbaniy¹

2016

AFR

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This paper explores the herding dynamics in US mutual funds' trading and documents the evidence of increased herding over time. I observe (slightly) higher levels of overall herding compared to main stream herding literature with asymmetry on the buy and sell side; the overall herding level is weakly affected by the scale economies and significantly influenced by a fund's style. Increased participation of mutual funds to the financial markets, proxied by number of quarterly traded securities, appears to be positively correlated with mutual funds' herding. Both stocks' beta and market volatility are found to be crucial determinants of herding. A higher demand for the smaller-sized stocks confirms the presence of small-firm-effect anomaly. In addition, I find US mutual funds' herding more in bad market scenarios compared with good market environment.

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Section: Do Herds Emerge and Become Dominant In Times Of High Price Mcontrasting

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?

Rubbaniy¹

2016

AFR

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“…Under such conditions, investing into (or out of) the same stocks as their peers is a rational option; because stocks that other funds will be flocking towards will enjoy higher liquidity, this guarantees that any order placed for these stocks will be executed with higher probability. If herding is intentional, we would therefore expect a relationship between herding and market volume to unfold consider it appropriate to assess its impact over institutional herding in our sample markets, more so given research evidence stipulating that financial crises are turning points in herding-evolution (Hwang and Salmon, 2004). To that end, we split our …”

Section: Methodsmentioning

confidence: 99%

Do fund managers herd in frontier markets — and why?

Economou

Gavriilidis

Kallinterakis

et al. 2015

International Review of Financial Analysis

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Frontier markets constitute a category of markets for which very little is known regarding the behaviour of their institutional investors. This study attempts to shed light on this issue by investigating whether fund managers herd in frontier markets and whether their herding is intentional or not using data on quarterly portfolio holdings of funds from two such markets (Bulgaria and Montenegro). Results show that fund managers herd significantly in both markets; controlling for the interaction of their herding with different market states, we find that herding is stronger for both markets during periods of positive market performance and high volume, while in the case of Montenegro it also appears significant during periods of low volatility. Our findings are consistent with fund managers herding intentionally, in anticipation of informational and/or professional payoffs. We also find that Bulgarian (Montenegrin) fund managers herd significantly after (before) the outbreak of the 2008 global financial crisis and we attribute this to a volume-effect, since Montenegro (Bulgaria) saw the heaviest trading activity before (after) the crisis' outbreak.

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“…Avery and Zemsky (1998), for instance, develop a theoretical model to examine how different uncertainty types in financial markets differentially affect herding and contrarian behaviors among traders. In an empirical study, Hwang and Salmon (2004) find evidence that when markets are in crisis and thus highly uncertain, traders herd less. In a related vein, we investigate how observational learning in firm exit is moderated by three uncertainty types as defined earlier: firm uncertainty, market uncertainty, and inference uncertainty.…”

Section: Observational Learning and Uncertainty Typesmentioning

confidence: 99%

Decomposing Uncertainty and Its Effects on Imitation in Firm Exit Decisions

Gaba

Terlaak

2013

Organization Science

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T his study examines the effects of different uncertainty types on interorganizational imitation in firm exit decisions.We draw on herding models to conceptualize exit decisions as being based on a firm's private information, which the firm updates with information inferred from observing the actions of others. We posit that different types of uncertainty differentially affect this observational learning process; in particular, we propose that certain uncertainty types attenuate (rather than foster) observational learning and subsequent imitation. We test this theory using a 29-year panel data set on the exit of private venture capital firms. Our results indicate that observational learning does influence imitation in firm exit decisions, and they also suggest that a common belief-that uncertainty enhances imitation-does not apply to all types of uncertainty. Specifically, we find that uncertainty fosters imitation only when it is idiosyncratic to the firm; uncertainties that are common to all firms, in contrast, actually reduce reliance on observational learning. By decomposing uncertainty into different types and explicating their effects on imitation, we demonstrate that this relationship is more nuanced than previously assumed and, in addition, highlight the role of deliberate information processing in imitation.

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Market stress and herding

Cited by 547 publications

References 34 publications

What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?

What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?

Do fund managers herd in frontier markets — and why?

Decomposing Uncertainty and Its Effects on Imitation in Firm Exit Decisions

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