Title:

Rational Herding and the Spatial Clustering of Bank Branches : An Empirical Analysis, Research Paper 9724

PREVIOUS | NEXT

Rational Herding and the Spatial Clustering of Bank Branches : An Empirical Analysis, Research Paper 9724

DATE: August 1997

PART OF: AUTHORS:

ABSTRACT: Bank branches in New York City tend to be spatially clustered. For instance, of the 221 branches that were opened in New York City between July, 1990 and June, 1995, 181 (or 82 percent) were opened in census tracts that already had at least one other branch. A number of recent theoretical papers have highlighted the possibility of rational herding in various arenas of economic activity. This paper explores empirically whether the apparent clustering of bank branches can be at least partially attributed to rational herding by banks. We find that even after controlling for the expected profitability of operating a branch in an area, branch openings follow other, existing branches. Moreover, such bandwagon behavior appears to reduce branch profits. These findings, combined, suggest that herd behavior may be a factor in the branch location decisions of banks.

Download (pdf) View Full Text

Share this page:


Diversity is critical to the Federal Reserve, and we are firmly committed to fostering a diverse and inclusive culture throughout the Federal Reserve System. Collections within FRASER contain historical language, content, and descriptions that reflect the time period within which they were created and the views of their creators. Certain collections contain objectionable content—for example, discriminatory or biased language used to refer to racial, ethnic, and cultural groups. These viewpoints and attitudes are inconsistent with our values, but the original descriptions are retained to ensure that they are not erased from the historical record.
Save & Share
less

Chang, Angela E. , Chaudhuri, Shubham and Jayaratne, Jith. "Rational Herding and the Spatial Clustering of Bank Branches : An Empirical Analysis, Research Paper 9724," Research Papers (Federal Reserve Bank of New York) (August 1997). https://fraser.stlouisfed.org/title/6570/item/615576, accessed on May 4, 2024.

More Information
less

SUBJECTS:

THEMES: CLASSIFICATION:
  • lcc: HG136 .R45 no.9724
IDENTIFIERS:
  • oclc: 37741485
  • repec: fip:fednrp:9724
Metadata (XML)
Metadata (JSON)