Download or read book Estimating a Structural Model of Herd Behavior in Financial Markets written by Antonio Guarino and published by International Monetary Fund. This book was released on 2010-12-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural 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 often arises and is particularly pervasive on some days. The proportion of herd buyers (sellers) is 2 percent (4 percent) and is greater than 10 percent in 7 percent (11 percent) of information-event days. Herding causes important informational inefficiencies, amounting, on average, to 4 percent of the expected asset value.

Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stochastic Herding in Financial Markets Evidence from Institutional Investor Equity Portfolios written by Makoto Nirei and published by . This book was released on 2014 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate a structural model of herding behavior in which feedback arises due to mutual concerns of traders over the unobservable "true" level of market liquidity. In a herding regime, random shocks are exacerbated by endogenous feedback, producing a dampened power-law in the fluctuation of largest sales. The key to the fluctuation is that each trader responds not only to private information, but also to the aggregate behavior of others. Applying the model to the data on portfolios of institutional investors (fund managers), we find that the empirical distribution is consistent with model predictions. A stock's realized illiquidity propagates herding and raises the probability of observing a sell-off. The distribution function itself has desirable properties for evaluating "tail risk"

Download or read book Herd Behavior and Aggregate Fluctuations in Financial Markets written by Rama Cont and published by . This book was released on 1998 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a simple model of a stock market where a random communication structure between agents gives rise to a heavy tails in the distribution of stock price variations in the form of an exponentially truncated power-law, similar to distributions observed in recent empirical studies of high frequency market data. Our model provides a link between two well-known market phenomena: the heavy tails observed in the distribution of stock market returns on one hand and 'herding' behavior in financial markets on the other hand. In particular, our study suggests a relation between the excess kurtosis observed in asset returns, the market order flow and the tendency of market participants to imitate each other.

Download or read book Herd Behavior in Financial Markets written by Antonio Guarino and published by INTERNATIONAL MONETARY FUND. This book was released on 2008-06-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as theory suggests; moreover, contrarianism disappears altogether.

Download or read book Herd Behavior in Financial Markets written by Marco Cipriani and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as theory suggests; moreover, contrarianism disappears altogether.

Download or read book Partial Least Squares Structural Equation Modeling written by Necmi K. Avkiran and published by Springer. This book was released on 2018-02-16 with total page 243 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book pulls together robust practices in Partial Least Squares Structural Equation Modeling (PLS-SEM) from other disciplines and shows how they can be used in the area of Banking and Finance. In terms of empirical analysis techniques, Banking and Finance is a conservative discipline. As such, this book will raise awareness of the potential of PLS-SEM for application in various contexts. PLS-SEM is a non-parametric approach designed to maximize explained variance in latent constructs. Latent constructs are directly unobservable phenomena such as customer service quality and managerial competence. Explained variance refers to the extent we can predict, say, customer service quality, by examining other theoretically related latent constructs such as conduct of staff and communication skills. Examples of latent constructs at the microeconomic level include customer service quality, managerial effectiveness, perception of market leadership, etc.; macroeconomic-level latent constructs would be found in contagion of systemic risk from one financial sector to another, herd behavior among fund managers, risk tolerance in financial markets, etc. Behavioral Finance is bound to provide a wealth of opportunities for applying PLS-SEM. The book is designed to expose robust processes in application of PLS-SEM, including use of various software packages and codes, including R. PLS-SEM is already a popular tool in marketing and management information systems used to explain latent constructs. Until now, PLS-SEM has not enjoyed a wide acceptance in Banking and Finance. Based on recent research developments, this book represents the first collection of PLS-SEM applications in Banking and Finance. This book will serve as a reference book for those researchers keen on adopting PLS-SEM to explain latent constructs in Banking and Finance.

Download or read book The Herd Behavior Index written by Jan Dhaene and published by . This book was released on 2015 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce a new and easy to calculate measure for systemic risk in financial markets. This measure is baptized the Herd Behavior Index (HIX). It is model independent and forward looking, based on observed option data.In order to determine the degree of systemic risk or herd behavior in a financial market one should compare the observed market situation with the extreme (theoretical) situation under which the whole system is driven by a single factor.The Herd Behavior Index (HIX) is defined as the ratio of an option-based estimate of the risk-neutral variance of the market index and an option-based estimate of the corresponding variance of this extreme market situation. Using the theory of comonotonicity, the extreme situation can easily be backed out of the observed option quotes.The HIX can be determined for any market index provided an appropriate series of vanilla options is traded on this index as well as on its components. As an illustration, we determine historical values of the 30-days implied Herd Behavior Index for the Dow Jones Industrial Average, covering the period January 2003 to October 2009.

Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?

Download or read book Herd Behavior Towards the Market Index written by Daxue Wang and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the cross-sectional variance of the betas to study herd behavior towards market index in major developed and emerging financial markets (categorized as developed group, Asian group, and Latin American group). We propose a robust regression technique to calculate the betas of the CAPM and those of the Fama-French three-factor model, with an intention to diminish the impact of multivariate outliers in return data. Through the estimated values obtained from a state space model, we examine the evolution of herding measures, especially their pattern around sudden events such as the 1997-1998 financial crises. This 1997-1998 turmoil turns out to have formed a turning point for most of the financial markets. We document a higher level of herding in emerging markets than in developed markets. We also find that the correlation of herding between two markets from the same group is higher than that between two markets from different groups. This paper will shed light on the calculation of beta and on the financial policy to understand the dynamics of herding in financial markets.

Download or read book The Oxford Handbook of Computational Economics and Finance written by Shu-Heng Chen and published by Oxford University Press. This book was released on 2018-01-12 with total page 785 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of Computational Economics and Finance provides a survey of both the foundations of and recent advances in the frontiers of analysis and action. It is both historically and interdisciplinarily rich and also tightly connected to the rise of digital society. It begins with the conventional view of computational economics, including recent algorithmic development in computing rational expectations, volatility, and general equilibrium. It then moves from traditional computing in economics and finance to recent developments in natural computing, including applications of nature-inspired intelligence, genetic programming, swarm intelligence, and fuzzy logic. Also examined are recent developments of network and agent-based computing in economics. How these approaches are applied is examined in chapters on such subjects as trading robots and automated markets. The last part deals with the epistemology of simulation in its trinity form with the integration of simulation, computation, and dynamics. Distinctive is the focus on natural computationalism and the examination of the implications of intelligent machines for the future of computational economics and finance. Not merely individual robots, but whole integrated systems are extending their "immigration" to the world of Homo sapiens, or symbiogenesis.

Download or read book Herd Behavior and Fat Tails in Financial Markets written by Makoto Nirei and published by . This book was released on 2006 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates that a generic herd behavior model generates a fat-tailed distribution of traders' aggregate actions. We consider a simultaneous-move game of traders who infer other traders' private information on the value of assets by observing their actions and decide whether to buy the asset or not. The number of buying actions in a Bayesian Nash equilibrium is characterized by a sum of a binomial process by introducing a fictitious tatonnement. Under a broad class of distributions for the private information, we show that the aggregate actions follow a power-law distribution with an exponential truncation. The empirical distribution of the daily returns of Samp;P 500 stocks is fitted by the model prediction, when the aggregate actions are translated into price movements either by an empirical volume-price impact function or by a market-maker who sets the price by incorporating the available information. This model nests the benchmark herd behavior model and the recent models of critical phenomena in the network of traders. The latter showed that the aggregate actions follow a power-law tailed distribution when the connectivity of networked traders is set at a critical level. In this context, we provide an economic reason why at all the rational herding behavior exhibits criticality in a general setting. Suppose that a good private information leads a trader to buy, whereas the other traders do not buy despite their observation of the action. Then their inactions reveal their private information partially. The total impact of the action on the revealed information is thus of order 1/N, where N is the total number of traders, if the private information is equally informative across the traders. When this is the case, the mean impact of the initial action on the other actions is roughly equal to one. The tatonnement triggered by the initial action becomes a martingale, in which the distribution of the total number of buying actions during the tatonnement exhibits a power-law tail. We further show that, when the static game is repeated over time, the triggering action almost surely occurs and the mean impact of the action in the chain reaction evolves toward the critical level. This implies that the rational learning of traders self-organizes their beliefs to the critical state at which a power-law clustering of actions emerges.

Download or read book Contemporary Issues in Behavioral Finance written by Simon Grima and published by Emerald Group Publishing. This book was released on 2019-07-04 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt: This special edition of Contemporary Studies in Economic and Financial Analysis offers seventeen chapters from invited participants in the International Applied Social Science Congress, held in Turkey between the 19th and 21st April 2018.

Download or read book Herding and Contrarian Behavior in Financial Markets written by Andreas Park and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Long Memory in Economics written by Gilles Teyssière and published by Springer Science & Business Media. This book was released on 2006-09-22 with total page 394 pages. Available in PDF, EPUB and Kindle. Book excerpt: Assembles three different strands of long memory analysis: statistical literature on the properties of, and tests for, LRD processes; mathematical literature on the stochastic processes involved; and models from economic theory providing plausible micro foundations for the occurrence of long memory in economics.

Download or read book Heterogenous Agents Interactions and Economic Performance written by Robin Cowan and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 340 pages. Available in PDF, EPUB and Kindle. Book excerpt: In traditional economics models of perfect competition agent's interactions are all mediated through the market. Interactions are anonymous, global and indirect. This is a powerful model, but we see many instances in which one, and sometimes all, of the previous characteristics fail to hold true. The type of agent you are, or your identity, can affect the type of interaction we have, and most surely the relationship between micro-behaviour and macro-phenomena in non-trivial ways. This book contains a selection of papers presented at the 6th Workshop on Economics with Heterogenous Interacting Agents (WEHIA). The contributions show that work done in other fields like evolutionary biology, statistical mechanics, social network theory and others help us to understand the way in which economic systems operate. Virtually all of the papers presented in this volume draw on some aspect or other of these varied approaches to related problems.

Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.