Testing Intentional Herding in Familiar Stocks: An Experiment in an International Context

Abstract

This paper examines the intentional herd behaviour of market participants within different international markets (Germany, United Kingdom, United States, Mexico, Japan, Spain and France) using a new approach that permits the detection of even moderate herding over the whole range of market return. This approach compares the cross-sectional deviation of returns of each of the selected markets with the cross-sectional deviation of returns of an “artificially created” market free of herding effects. We suggest that intentional herding is likely to be better revealed when we analyse familiar stocks. The results show that only the Spanish market exhibits a significant herding effect.