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The purpose of this paper is to review recent contributions to the theoretical and empirical literature on informational cascades.
Abstract
Purpose
The purpose of this paper is to review recent contributions to the theoretical and empirical literature on informational cascades.
Design/methodology/approach
This paper reviews and synthesises the existing literature, methodologies and evidence on informational cascades.
Findings
Many financial settings foster situations where informational cascades and herding are likely. Cascades remain mainly an area of experimental research, leaving the empirical evidence inconclusive. Existing measures have limitations that do not allow for a direct test of cascading behaviour. More accurate models and methods for empirical testing of informational cascades could provide more conclusive evidence on the matter.
Practical implications
Outlined findings have implications for designing policies and regulatory requirements, as well as for the design of collective decisions processes.
Originality/value
The paper reviews and critiques existing theory; it summarises the recent laboratory and empirical evidence and identifies issues for future research. Most of other theoretical work reviews informational cascades as a subsection of herding. This paper focusses on informational cascades specifically. It distinguishes between informational cascade and herding. The paper also reviews most recent empirical evidence on cascades, presents review and synthesis of the theoretical and empirical development on information cascades up to date, and reviews the model of informational cascades with model criticism.
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Qihua Liu and Liyi Zhang
The purpose of this paper is to examine information cascades in the context of users’ e-book reading behavior and differentiate it from alternative factors that lead to herd…
Abstract
Purpose
The purpose of this paper is to examine information cascades in the context of users’ e-book reading behavior and differentiate it from alternative factors that lead to herd behavior, such as network externalities and word-of-mouth effects.
Design/methodology/approach
This paper constructed panel data using information concerning 226 e-books in 30 consecutive days from Sina.com’s reading channel (Book.Sina.com.cn) from October 2, 2013, to October 31, 2013 of the same year in China. A multinomial logit market-share model was employed.
Findings
E-books’ ranking has a significant impact on their market share, as predicted by informational cascades theory. Higher ranking e-books’ clicks will see a greater increase as a result of an increase in clicks ranking. Due to the information cascades effect, review volume had no impact on the market share of popular e-books. Total votes had a powerful impact on the market share of e-books, showing that once information cascade occurred, it could be enhanced by the increase in total votes. The total clicks of e-books had a significant impact on their market share, suggesting that online reading behavior would be influenced by network externalities.
Practical implications
As important information, the ranking or popularity of e-books should be carefully considered by online reading web sites, publishers, and authors. It is not enough for the authors and publishers of e-books to simply pay attention to the content. They should design their marketing strategies to allow network externalities and informational cascades to work for them, not against them. Online reading web sites should also focus on eliminating certain behavior, such as “brush clicks” and “brush votes,” in order to prevent an undesirable information cascade due to false information.
Originality/value
To the best of the knowledge, this is the first study to examine information cascades in the context of users’ e-book reading behavior. Moreover, this study can help other researchers by utilizing a large sample of daily data from one of the earliest online reading platforms in China.
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– The purpose of this paper is to provide a review of theory and empirical evidence on herding behavior in financial markets.
Abstract
Purpose
The purpose of this paper is to provide a review of theory and empirical evidence on herding behavior in financial markets.
Design/methodology/approach
Review and discussion of the literature.
Findings
More than two decades of empirical and theoretical research have provided a significant insight on investor herding behavior.
Research limitations/implications
The discussion indicates that there are still open issues and areas with inconclusive evidence, e.g. the author knows relatively little for markets other than equity markets.
Practical implications
The paper may need empirical methodologies to evaluate herding that address current limitations.
Originality/value
The paper reviews recent empirical evidence and identifies open issues for future research.
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This study is concerned with markets operating in Turkey in the Istanbul Stock Exchange (BIST), which have been observed and studied in relation to herd behavior. During the…
Abstract
This study is concerned with markets operating in Turkey in the Istanbul Stock Exchange (BIST), which have been observed and studied in relation to herd behavior. During the research part of the study, the existence of herd behavior was investigated with the help of the daily closing price data of the firms in BIST between January 2011 and December 2017. In the research section of the study, the authors used regression analysis. In the analysis, the authors used the index value of the BIST whole Index. The average value of the index value of BIST whole Index was taken. Then, according to this average, 1% percentile and 5% percentile were taken. In the periods in the 1% percentile (at the dates) the result was that herd behavior was present. The herd behavior was observed for the periods (for dates) included in the percentile of 1%. On the other hand, the results of the analysis for the 5% percentile show that the herd behavior is only seen in the upper extremes.
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– The purpose of this paper, and a companion paper (Duxbury, 2015), is to review the insights provided by experimental studies examining financial decisions and market behavior.
Abstract
Purpose
The purpose of this paper, and a companion paper (Duxbury, 2015), is to review the insights provided by experimental studies examining financial decisions and market behavior.
Design/methodology/approach
Focus is directed on those studies examining explicitly, or with direct implications for, the most robustly identified phenomena or stylized facts observed in behavioral finance. The themes for this first paper are theory and financial markets.
Findings
Experiments complement the findings from empirical studies in behavioral finance by avoiding some of the limitations or assumptions implicit in such studies.
Originality/value
The authors synthesize the valuable contribution made by experimental studies in extending the knowledge of the functioning of financial markets and the financial behavior of individuals.
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Consilz Tan and Chee Yoong Liew
The paper examines the ‘Intention to Receive the COVID-19 Vaccines’ or IRV from three perspectives: the health belief model, behavioural economics, and institutional quality.
Abstract
Purpose
The paper examines the ‘Intention to Receive the COVID-19 Vaccines’ or IRV from three perspectives: the health belief model, behavioural economics, and institutional quality.
Design/methodology/approach
This study provides quantitative analysis by applying Chi-squared test of contingencies, paired sample t-tests, exploratory factor analysis, and multiple linear regression (stepwise method) on the data collected from 591 respondents mainly from Malaysia.
Findings
The results show that Perceived Benefits, Perceived Barriers, Perceived Susceptibility, Herding, and Institutional Quality play roles as predictors of IRV. Perceived Benefits play the most crucial role among the predictors and Perceived Barriers is the least important predictor. People have the herding mentality after being exposed to information encouraging such behaviour.
Originality/value
This study reveals that the respondents changed their behaviour in different circumstances when exposed to information that incorporates the effect of herding. Herding mentality, the effectiveness of government authorities, and regulatory quality have become important factors in enriching public health policies and the effectiveness of interventions.
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Pamela S. Tolbert and Tiffany Darabi
This analysis investigates the micro-dynamics of organizational decision-making by exploring connections between institutional theory, on the one hand, and both social…
Abstract
This analysis investigates the micro-dynamics of organizational decision-making by exploring connections between institutional theory, on the one hand, and both social psychological research on conformity and recent work in economics on herd behavior and information cascades, on the other hand. The authors draw attention to the differences between normative and informational conformity as distinct motivational drivers of adoption behaviors by exploring their differential effects on the post-adoption outcomes of decoupling (e.g., Westphal & Zajac, 1994), customization (e.g., Fiss, Kennedy, & Davis, 2012), and abandonment (e.g., Ahmadjian & Robinson, 2001). The authors conclude that normative conformity leads to certain post-adoption outcomes while informational conformity is associated with others.
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We introduce the idea that informational cascades can explain the observed regularity that emigrants from the same location tend to choose the same foreign location. Thus…
Abstract
We introduce the idea that informational cascades can explain the observed regularity that emigrants from the same location tend to choose the same foreign location. Thus, informational cascades generate herd behavior. Herd behavior is compared with the network-externalities explanation of the same phenomenon of migration clustering.
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Partha Gangopadhyay, Mamun Billah and Siddharth Jain
Economic and financial integration (hereafter, economic integration) among economies has been a fertile area of research. Yet, what we argue is that economic integration needs new…
Abstract
Economic and financial integration (hereafter, economic integration) among economies has been a fertile area of research. Yet, what we argue is that economic integration needs new thoughts to adequately model the recent challenges to the global economy by developing a new index/measure of economic integration. The new index will not only shed invaluable insights into the drivers of economic integration between Australia and the Middle East but will also help craft economic, trade, and commercial policies to achieve the desired type of integration with Australia's trading partners. Our analysis is undertaken on a cross section of 140 countries for the year 2011, to understand the causes and indicators of integration. Our model combines changes in real GDP, per capita GDP, percentage of educational expense, and gender inequality as causal factors to explain integration as a latent variable. We use three indicators of integration: (1) a standard measure of economic integration, (2) exports and imports as a percentage of GDP, (3) flows of foreign direct investment. We then explore the linkages between these indicators, or manifestations of integration, and a number of its possible causes. In terms of the new index we rank 140 nations and note that Australia is ranked among the top 20 nations in terms of integration with the global economy. Except Israel and Oman, Australia's trade partners in the Middle East have little integration with the global economy. In a similar vein, we also find that Australia's northern neighbors – especially Indonesia, Malaysia, Thailand, Cambodia, Myanmar, Sri Lanka, India – are yet to get well-integrated with the global economy. As a result, we argue, Australia can lead these countries from Southeast Asia and the Middle East to form closer ties with the global economy via Australia and, by doing so, Australia can create unprecedented economic and social benefit.
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Panagiotis Andrikopoulos, Andreas Albin Hoefer and Vasileios Kallinterakis
The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange…
Abstract
Purpose
The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange group.
Design/methodology/approach
The hypothesis is tested empirically in EURONEXT's four European equity markets (Belgium, France, the Netherlands and Portugal) on the premise of the Hwang and Salmon (2004) measure which allows us insight into the significance, structure and evolution of market herding. Tests are conducted for each market for the period prior to and after its merger into EURONEXT, controlling for a series of variables (market conditions, common risk factors, size) to gauge the robustness of the findings.
Findings
Results indicate that, with the exception of Portugal, herding grows in significance, yet declines in momentum post-merger. The authors ascribe the findings to EURONEXT's enhanced transparency (which makes it easier for investors to observe their peers’ trades, thus allowing them to infer and free-ride on their information) and its fast-moving informational dynamics that render herding movements shorter-lived. These results are robust when controlling for various market states and common risk factors, with deviations being observed when controlling for size and market volatility.
Originality/value
The study presents results for the first time on the impact of exchange mergers on herd behavior. The authors believe these to constitute useful stimulus for further research on the issue and bear important implications for regulators/policymakers in view of the ongoing proliferation of exchange mergers that has been underway since the 1990s.
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