Abstract
This study examines the (anti-) herding behaviors of stock price forecasters, focusing on whether their behaviors are time-varying. It studies stock price forecasts for the Nikkei 225 price index from the ESP Forecast in Japan based on nonparametric methods. Empirical results show that stock price forecasters are likely to anti-herd, and the uncertainty caused by financial crises and market shocks is related to the prevalence of (anti-) herding. This study finds that an increase in forecast uncertainty works in both directions, toward herding and anti-herding. Unprecedented shocks, including the financial crises, European sovereign debt crisis, and newly introduced policy packages by Abenomics, increase incentives to differentiate forecasts from others, possibly due to reputation or superstar effects. However, some market shocks, including the BNP Paribas shock and the China shock, intensified herding or lessened anti-herding.
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Notes
The empirical results using March 2009 as the end of the period do not alter qualitative results.
Results excluding forecasters with relatively few observations are generally consistent with those including all forecasters. Although this analysis is not reported here, it is available upon request.
Clements (2018) provided a critical discussion on the method used in this study.
The subprime crisis period was also characterized by a substantial supply shock that occurred when oil and other commodity prices rose sharply until the summer of 2008, but then declined precipitously thereafter. Therefore, it is essentially difficult to ignore the impact of the supply shock.
The results are generally robust to the number of windows for rolling estimations. Although they are not reported here, they are available upon request.
Although not reported in this paper, robustness check with median forecasts provides the same qualitative results.
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The author is grateful for funding provided by the Yu-cho Foundation 2016 research grant. The author also thanks the anonymous referees for their helpful comments.
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Tsuchiya, Y. Crises, market shocks, and herding behavior in stock price forecasts. Empir Econ 61, 919–945 (2021). https://doi.org/10.1007/s00181-020-01894-4
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DOI: https://doi.org/10.1007/s00181-020-01894-4