Rational herding

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In economics and finance, rational herding is a situation in which market participants react to information about the behavior of other market agents or participants rather than the behavior of the market, and the fundamental transactions.[1][2]

Rational herding in financial markets can take place because some investors believe others to be better informed than themselves, and follow them, disregarding their own information or market fundamentals.[3] Reliance on rational herding can be a source of instability in financial markets.[1]


  1. ^ a b International economic policy review, Volume 2 by International Monetary Fund 2001 ISBN 1-58906-030-X page 100 [1]
  2. ^ Andrea Devenow and Ivo Welch Rational herding in financial economics in European Economic Review Volume 40, Issues 3-5, April 1996, Pages 603-615 [2]
  3. ^ Handbook of Behavioral Finance edited by Brian Bruce 2010 ISBN 1-84844-651-9 page 103 [3]