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Close communications: hedge funds, brokers and the emergence of herding

Kellard, Neil, Millo, Yuval, Simon, Jan and Engel, Ofer (2017) Close communications: hedge funds, brokers and the emergence of herding. British Journal of Management, 28 (1). pp. 84-101. ISSN 1045-3172

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Identification Number: 10.1111/1467-8551.12158

Abstract

We examine how communication, evaluation and decision-making practices among competing market actors contribute to the establishment of herding and whether this has impact on market wide phenomena such as prices and risk. Data is collected from interviews and observations with hedge fund industry participants in Europe, the United States and Asia. We examine both contemporaneous and biographical data, finding that decision making relies on an elaborate two-tiered structure of connections among hedge fund managers and between them and brokers. This structure is underpinned by idea sharing and development between competing hedge funds leading to ‘expertise-based’ herding and an increased probability of over-embeddedness. We subsequently present a case study demonstrating the role that communication between competing hedge funds plays in the creation of herding and show that such trades affect prices by introducing an additional risk: the disregarding of information from sources outside the trusted connections.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2016 British Academy of Management
Divisions: Management
Centre for Analysis of Time Series
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Sets: Departments > Management
Research centres and groups > Centre for the Analysis of Time Series (CATS)
Date Deposited: 21 Dec 2015 09:25
Last Modified: 30 Jan 2019 20:35
URI: http://eprints.lse.ac.uk/id/eprint/64766

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