Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis
David Hirshleifer and Siew Hong Teoh
European Financial Management, 2003
We review theory and evidence relating to herd behaviour, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behaviour of investors, firms, and analysts. We consider both incentives for parties to engage in herding or cascading, and the incentives for parties to protect against or take advantage of herding or cascading by others.