Work

Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation

Year: 1992

Type: article

Abstract: Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e., can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals.

Source: The Journal of Finance

DOI: 10.2307/2328947

Authors: Kenneth A. Froot, David S. Scharfstein, Jeremy C. Stein

Institutions: National Bureau of Economic Research, Harvard University, Massachusetts Institute of Technology, Council of Economic Advisers

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funders: Sage Foundation, Harvard Business School

OpenAlex ID: W2890273620

FWCI: 8.114

Cites: 22

Cited by: 180

Related to: 10