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Imitation Amongst Exchange-Rate Forecasters: Evidence from Survey Data
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In this article, the extent of herd behavior in the major foreign exchange markets using monthly survey data relative concerning individual forecasts for the DM (or euro) andthe yen against the US dollar is assessed.Abstract:
In this paper we assess the extent of herd behaviour in the major foreign exchange marketsusing monthly survey data relative concerning individual forecasts for the DM (or euro) andthe yen against the US dollar. We conduct Granger-causality tests and SURE estimations overtwo distinct periods (1990-1994 and 1996-2001) to analyze whether forecasters where subjectto imitation during these periods. The results allow to compute leadership and “followership”indices. They show that, although most forecasters are connected to others through leading orimitation patterns, sequential herding is not a prominent feature of the market, at least at themonthly frequency. Moreover, there is no clear relationship between the degree of leadershipand the performance of individuals. Hence, our results cast doubts on sequential herding offorecasters as one potential major cause of long-lived deviations of the exchange rate from itsfundamental value. Keywords: herding, exchange-rate forecasts, survey data.JEL: F31, F37read more
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References
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Herd Behavior and Investment
TL;DR: In this paper, the authors examine some of the forces that can lead to herd behavior in investment and discuss applications of the model to corporate investment, the stock market, and decision making within firms.
Book
The Microstructure Approach to Exchange Rates
TL;DR: In this paper, the authors focus on the economics of financial information and how microstructure tools help to clarify the types of information most relevant to exchange rates, and show how exchange-rate behavior previously thought to be particularly puzzling can be explained using the micro-structure approach.
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Herd Behaviour, Bubbles and Crashes.
TL;DR: In this paper, the authors formalize herd behavior or mutual mimetic contagion in speculative markets and explain the emergence of bubbles as a self-organizing process of infection among traders leading to equilibrium prices which deviate from fundamental values.
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Ants, Rationality, and Recruitment
TL;DR: In this article, a simple model of stochastic recruitment is proposed to explain the behavior of ant foraging and recruitment in financial markets, which explains the "herding" and "epidemics" described in the literature on financial markets as corresponding to the equilibrium distribution of a stochastically process rather than to switching between multiple equilibria.
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Herd behavior and aggregate fluctuations in financial markets
Rama Cont,Jean-Philippe Bouchaud +1 more
TL;DR: In this article, the authors present a simple model of a stock market where a random communication structure between agents generically gives rise to heavy tails in the distribution of stock price variations in the form of an exponentially truncated power law, similar to distributions observed in recent empirical studies of highfrequency market data.