Title: Catching the elusive herder: a second look at herding in heterogeneous samples

Authors: Alexander Munson; Han Yan

Addresses: Department of Mathematics and Computer Science, Wilson College, 1015 Philadelphia Ave, Chambersburg, PA 17201, USA ' Department of Finance, London School of Economics, Houghton Street, London WC2A 2AE, UK

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.

Keywords: herd behaviour; contrarian trading; PCM; portfolio change measure; herding; security trading; securities.

DOI: 10.1504/IJFMD.2016.081692

International Journal of Financial Markets and Derivatives, 2016 Vol.5 No.2/3/4, pp.140 - 153

Received: 15 Oct 2015
Accepted: 11 May 2016

Published online: 20 Jan 2017 *

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