Detecting intentional herding: what lies beneath intraday data in the Spanish stock market

This paper examines the intentional herd behaviour of market participants, using Li's test to compare the probability distributions of the scaled cross-sectional deviation in returns in the intraday market with the cross-sectional deviation in returns in an 'artificially created' market free of intentional herding effects. The analysis is carried out for both the overall market and a sample of the most representative stocks. In addition, a bootstrap procedure is applied in order to gain a deeper understanding of the differences across the distributions under study. The results show that the Spanish market exhibits a significant intraday herding effect that is not detected using other traditional herding measures when familiar and heavily traded stocks are analysed. Furthermore, it is suggested that intentional herding is likely to be better revealed using intraday data, and that the use of a lower frequency data may obscure results revealing imitative behaviour in the market. Journal of the Operational Research Society (2011) 62, 1056-1066. doi: 10.1057/jors.2010.34 Published online 5 May 2010