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| Author: | Nelson, N. |
| Title: | Persistence and Reversal in Herd Behavior; Theory and Application to the Decision to Go Public |
| Journal: | Review of Financial Studies
2002 : SPRING, VOL. 15:1, p. 65-96 |
| Index terms: | THEORIES DECISION MAKING DECISION ANALYSIS PUBLICITY INITIAL PUBLIC OFFERINGS |
| Language: | eng |
| Abstract: | The authors model rational herd behavior when the underlying value changes over time, with payoffs that are either dependent or independent of the underlying value. The authors show that herding does not last forever and is not monotone in signal quality. High correlation among agents' actions does not necessarily imply herding. This suggests alternative empirical methods are needed to detect herding. The model has many applications, including the IPO decision in which payoffs are state dependent. The model implies that the decision to go public is more likely associated with herding than the decision to delay an IPO. |
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