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Herd Behavior in Financial Markets
The first 200 words of this essay...
Herd Behavior in Financial Market
Definition of herding
On Friday 14 September 2007, when Northern Rock in the UK opened it branches, many customers wanted to withdraw their savings and £1 billion, about 5% of the total bank deposits were withdrawn that day. And on Monday 17 September, a similar situation happened in front of Northern Rock branches in the UK. Even though every customer does not have the same amount of information, they all decided to behave in the same way and some were following the others on the following days without any clear plan. People thought that they were going to lose their bank deposits and that type of bank customers' behavior caused liquidity problem and made the situation even worse. However, none of the clients who kept their deposits lost due to the fact the British Government and the Bank of England would guarantee the safety of the deposits. How can we explain that kind of behavior? Originally Herding is a term meaning animal flocking behavior. And according to the definition of Wikipedia Herding is the act of bringing individual animals together into a group (herd), maintaining the group and moving the group from
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