An analysis of herding behavior in security analysts’ networks

In this paper, we build undirected weighted networks to study herding behavior among analysts and to analyze the characteristics and the structure of these networks. We then construct a new indicator based on the average degree of nodes and the average weighted clustering coefficient to research the various types of herding behavior. Our findings suggest that every industry has, to a certain degree, herding behavior among analysts. While there is obvious uninformed herding behavior in real estate and certain other industries, industries such as mining and nonferrous metals have informed herding behavior caused by analysts’ similar reactions to public information. Furthermore, we relate the two types of herding behavior to stock price and find that uninformed herding behavior has a positive effect on market prices, whereas informed herding behavior has a negative effect.