Herding and Contrarianism

A Matter of Preference

Bibliographic Data

ID19317569
AuthorsChad Kendall (University of Southern California, corresponding author)
Year2023
Volume105
Issue1
Pages190-205
Publication date2023-01-06
Open AccessNo
TypeARTICLE
VenueThe Review of Economics and Statistics (JOURNAL)
Journal identifiersISSN: 0034-6535 • E-ISSN: 1530-9142
PublisherMIT Press (PUBLISHER • US)
DOI10.1162/rest_a_01028
OpenAlexW3158978129
LanguageEN
References cited43

Herding and contrarian strategies produce informational inefficiencies when investors ignore private information, instead following or bucking past trends. In a simple market model, I show theoretically that investors with prospect theory preferences generically follow herding or contrarian strategies, but do so because of future returns as opposed to past trends. I conduct a laboratory experiment to test the theory and obtain an estimate of the distribution of preferences in the subject population. I find that approximately 70% of subjects have preferences that induce herding. Using the preference estimates, I quantify informational efficiencies and predict trade behavior in more general environments

Contrarian · Econometrics · Economics · Financial economics · Geography · Herd behavior · Herding · Microeconomics · Population · Preference · Experimental Behavioral Economics Studies · Financial Markets and Investment Strategies · Media Influence and Politics

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