Does Asymmetric Information Drive Herding? An Empirical Analysis

Abstract The authors explore the relative significance of information and its role in herding formation among investors. They investigate this relationship at 3 scales: the market, investor, and individual stock levels. At the aggregate market level, empirical evidence obtained suggests that a more transparent environment is likely to mitigate the extent of herding intensity, mainly as a result of a decay in non–information-based “intentional” herding. At the investor level, the authors find strong evidence of asymmetric herding between investors with heterogenous information (arbitragers and noise traders). Finally, at the stock individual level, the present results show a positive and statistically significant relationship between herding intensity and 5 firm-specific measures of information asymmetry.