Intentional and Spurious Herding Behavior : A Sentiment Driven Analysis

This study explores the nexus between investors’ sentiments and herding behavior toward the market consensus in the U.S. and Europe stock markets from January, 2005 to April, 2021. We document strong evidence of herding during periods characterized by high level of sentiments. Our results reveal that Thomson Reuters MarketPsych Indices positively impact herding and confirm the assumption that sentiments might drive investors’ decisions. Moreover, these sentiments trigger an intentional herding, rather than a spurious one, suggesting the presence of noise investors in the market. We find also evidence of cross-country herding spillover effects that diminish the benefits of international diversification