Reputational Herding in Financial Markets: A Laboratory Experiment

54 Pages Posted: 27 Jan 2015

See all articles by Andreas Roider

Andreas Roider

University of Regensburg - Department of Economics and Econometrics; IZA Institute of Labor Economics

Andrea Voskort

BaFin- Federal Financial Supervisory Authority

Date Written: January 26, 2015

Abstract

We study reputational herding in financial markets in a laboratory experiment. In the spirit of Dasgupta and Prat (2008), career concerns are introduced in a sequential asset market, where wages for investors are set by subjects in the role of employers. Employers can observe investment behavior, but not investors’ ability types. Thereby, reputational incentives may arise endogenously. We find that a sizeable fraction of investors follows an established trend even in a setting where there are no reputational incentives. In a setting where there are reputational concerns, they do not seem to create substantial herd behavior.

Keywords: reputation, herding, imitation, financial markets, experiment

JEL Classification: C910, D800, G140

Suggested Citation

Roider, Andreas and Voskort, Andrea, Reputational Herding in Financial Markets: A Laboratory Experiment (January 26, 2015). CESifo Working Paper Series No. 5162, Available at SSRN: https://ssrn.com/abstract=2555575

Andreas Roider (Contact Author)

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrea Voskort

BaFin- Federal Financial Supervisory Authority ( email )

Bonn, 53117
Germany

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