Herd behavior
As herd behavior is called a financial market phenomenon. It refers to the observation that investors in their decisions to follow like a flock, and thus invest or disinvest majority in a system object. The result of herd behavior are strong fluctuations observed on investment property. Herd behavior is a form of the so-called contagion effects and thus a cause of financial crises.
Declaration of herd behavior
Herd behavior is usually explained by the existence of asymmetric information; cherish the investors believe that other investors have better information than they themselves, they will conduct on the market indicate ( buy / sell) as a result of these better information and to join the decision of the apparently better informed market actors. Herd behavior is thus a sign of lack of efficiency of markets.
Measurement
It is difficult to explicitly demonstrate herd behavior; a joint purchase / sale of a specific paper by many economic agents do not necessarily have to herd behavior (and therefore the information asymmetries ) be due. Instead, it could be caused by perfect information also straight when new information allow the current price of the track will appear wrong and if this information is known at the same time many economic agents. The result would be that those investors almost simultaneously buy the track / sell, without returning their individual decision on the behavior of other investors.
In addition, recent scientific studies support the suspicion that the incidence of herd behavior is overestimated.
Importance
Herd behavior can have a number of consequences, all of which can even lead to severe price fluctuations and consequently to financial and currency crises.
If there is herd behavior, so the only reason for the purchase (or sale ) of a plant on the rise ( fall ) of their price. Consequently, it comes through the herd behavior to continuous over-and under-valuation of asset prices. Thus, herd behavior will be similar to speculative behavior. However, at herd behavior does not necessarily lead to a speculative bubble.
Herd behavior can lead to self-fulfilling prophecies: Behaves a herd in a certain way, this can lead to change that a system underlying fundamentals by the herd behavior itself: you are going in the direction that strikes the flock - hence it is rational, not veer from the herd, thereby ultimately the expected result set.
With the concept of herd behavior closely related to the Bank Run: A bank run is characterized by the fact that many depositors pulling it up their contributions because they are afraid that contribution as a result of the sequential payment principle ( " first come, first served " ) otherwise no longer be able to deduct, as the cash reserves are depleted. Consequently, it is rational for each depositor to follow the herd.