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According to rational expectation models, uninformed or liquidity trading make market price volatility rise. This paper sets out to analyse the impact of herding, which may be interpreted as one of the components of uninformed trading, on the volatility of the Spanish stock market. Herding is examined at the intraday level, considered the most reliable sampling frequency for detecting this type of investor behavior, and measured using the Patterson and Sharma (Working Paper, University of Michigan–Dearborn, 2006) herding intensity measure. Different volatility measures (historical, realized and implied) are employed. The results confirm that herding has a direct linear impact on volatility for all of the volatility measures considered, although the corresponding intensity is not always the same. In fact, herding variables seem to be useful in volatility forecasting and therefore in decision making when volatility is considered a key factor.

One of the issues of greatest concern in the world of finance is trying to understand how investors make decisions. The classic theoretical explanations are based on conditions of investor rationality and the perfection of markets, and the use of information available in the market as a decisive tool. In recent years the branch of behavioural finance has emerged strongly in the field to try to expand this vision of investor behaviour. Factors associated with the psychological and sociological behaviour of individuals have been introduced as significant elements that go some way to explain investor decisions. Thaler (1991) and Shefrin (2000), among others, have incorporated an emotional component into the classic models considering both visions as compatible and complementary. A survey of the history and contributions in this field of finance in recent years can be found in Sewell (2007)., The authors wish to acknowledge the financial support of the Spanish Ministry of Education and Science (SEJ2006-C03-03/ECON), the Spanish Ministry of Science and Innovation (ECO2009-12819-C03-02), ERDF funds, the Caja de Ahorros de la Inmaculada (Europe XXI Programme) and the Government of Aragon.
# The author is grateful for the financial support of the Spanish Ministry of Education and Science (SEJ2006-14809-C03), the Spanish Ministry of Science and Innovation (ECO2009-12819-C03-01), ERDF funds and the Government of Navarra.

This is an accepted manuscript of an article published by Taylor & Francis in Quantitative Finance on February 2012, available online: http://dx.doi.org/10.1080/14697688.2010.516766, According to rational expectation models, uninformed or liquidity trading make market price volatility rise. This paper sets out to analyze the impact of herding, which may be interpreted as one of the components of uninformed trading, on the volatility of the Spanish stock market. Herding is examined at the intraday level, considered the most reliable sampling frequency for detecting this type of investor behavior, and measured using the Patterson and Sharma (2006) herding intensity measure. Different volatility measures (historical, realized and implied) are employed. The results confirm that herding has a direct linear impact on volatility for all of the volatility measures considered although the corresponding intensity is not always the same. In fact, herding variables seem to be useful in volatility forecasting and therefore in decision making when volatility is considered a key factor., Natividad Blasco and Sandra Ferreruela wish to acknowledge the financial support of the Spanish Ministry of Education and Science (SEJ2006-14809-C03-03/ECON), the Spanish Ministry of Science and Innovation (ECO2009-12819-C03-02), ERDF funds, the Caja de Ahorros de la Inmaculada (Europe XXI Programme) and the Government of Aragon. Pilar Corredor is grateful for the financial support of the Spanish Ministry of Education and Science (SEJ2006-14809-C03-01), the Spanish Ministry of Science and Innovation (ECO2009-12819-C03-01), ERDF funds and the Government of Navarra.