Quick Finance Tip – Herding and Information Cascades

​Biases can lead to herding behavior or information cascades. Herding is clustered trading that may or may not be based on information. Information cascade, contrarily, is the transmission of information from those participants who act first and whose decisions influence the decisions of others (may result in serial correlation of returns which is consistent with overreaction anomalies). However, information cascades are enhancing the information available to traders, as it improves the quality regarding the poor company information.