Catching the elusive herder: a second look at herding in heterogeneous samples
by Alexander Munson; Han Yan
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 5, No. 2/3/4, 2016

Abstract: We study herd behaviour in security trading by examining Wermers' portfolio change measure or PCM. In this paper, we show that PCM can fail to capture herding in certain heterogeneous samples. We give a theoretical analysis of the underlying mathematical mechanism and provide a proof that PCM can be minimised under certain portfolio conditions. We study the algebraic and geometric properties of PCM in their relations to both the individual and collective decisions of the managers in trading equities. A discussion on the lifting of these conditions is also provided to broaden the analysis in order to adapt to more complex scenarios in the securities market.

Online publication date: Fri, 20-Jan-2017

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