Associate Professor of Sociology Aaron Pitluck‘s research on professional investors in Malaysia was featured in a recent Bloomberg Businessweek profile, “What do traders in emerging markets want? Just ask them.” Pitluck presented his research at the New York Stock Exchange on August 9 as part of the Sociology of Market Microstructure Workshop.
By interviewing professional investors about their recent trades, Pitluck was able to provide a new interpretation of herding, the tendency for investors to mimic earlier investors’ trading. He found that local professional investors in emerging markets may have few reasons to imitate their powerful competitors housed in international asset management firms and investment banks. In other words, locals may admire George Soros’ skills, but they would rarely have cause to copy him; the widely observed “crowds” of investors behaving similarly are unlikely to be caused by imitation. His paper also advances a new theory of herding as “liquidity constrained,” meaning that herding is a difficult-to-accomplish social interaction between investors desiring to imitate and counterparties willing to trade with them. Pitluck’s research has a number of implications for public policy and regulation, and is forthcoming in Socio-Economic Review (“Watching foreigners: How counterparties enable herds, crowds, and generate liquidity in financial markets“).