Post by alanbond on Oct 5, 2014 7:19:48 GMT 4
The Sheep of the Wall Street: Correlated Trading and Investment Performance
Weiyu Kuo
National Chengchi University (NCCU) - Department of International Business
Tse-Chun Lin
University of Hong Kong - Faculty of Business and Economics
Jing Zhao
University of Hong Kong
August 28, 2014
Abstract:
We find that individual investors tend to trade in the same direction with other individual investors in the same branch of their broker. Individual investors’ tendency to herd is negatively associated with their cognitive abilities and trading experience. More importantly, the higher the herding tendency of an individual investor, the worse she performs in her investments. The negative association between herding and investment performance is driven by the orders that are traded in the same direction with other individual investors. Our results suggest that herding with other individuals in the same branch imposes a direct cost to individual investors.
Number of Pages in PDF File: 34
papers.ssrn.com/sol3/papers.cfm?abstract_id=2488845