Herding Behavior in Prediction Markets: Evidence from UK Financial Spread-Trading Markets

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Published: Jul 19, 2023
DOI: https://doi.org/10.5750/jpm.v17i1.2037
Keywords:
herding behavior prediction markets spread betting informed traders high frequency data

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Chung-Ching Tai
Southampton Business School, University of Southampton, Southampton SO17 1BJ, United Kingdom
Sarist Gulthawatvichai
King Mongkut’s Institute of Technology Ladkrabang Business School, Bangkok 10520, Thailand
Ming-Chien Sung
Southampton Business School, University of Southampton, Southampton SO17 1BJ, United Kingdom
Johnnie E. V. Johnson
Southampton Business School, University of Southampton, Southampton SO17 1BJ, United Kingdom
Jeremy Eng-Tuck Cheah
Nottingham Business School, Nottingham Trent University, Nottingham NG1 4FQ, United Kingdom

Abstract

We contrast the degree (strong vs. weak), nature (interaction between more and less informed traders; MI and LI, respectively), and patterns of herding behavior (via their feedback strategies) among MI and LI traders and their speed of reaction to shifts in trading by these groups. This is achieved by analyzing individual investment records of 1,943 traders in UK spread-trading markets (2010–2012). We find that herding is far more prevalent than previous studies suggest, particularly among LI; herding activities of MI and LI are related, and the means used to distinguish MI and LI needs to be considered carefully.

Article Details

Issue
Vol. 17 No. 1 (2023)
Section
Articles