Abstract
In this study, we empirically examine the existence and dynamics of herding in the burgeoning market of non-fungible tokens (NFT) with transaction-level data from November 23, 2017 to April 27, 2021. We adopt both macro- and micro-approaches to detect herding and find supportive evidence of the existence of herding in this market, the dynamics of which appears to be event-driven. A large inflow of newcomers or inexperienced investors can serve as a trigger of herding. Herding in the NFT market tends to arise when the return on Ethereum increases, but it tends to diminish as the return on Bitcoin increases. Meanwhile, unlike in traditional asset markets, herding in NFT markets does not appear to happen across submarkets (OpenSea, Atomic, Cryptokitties, Godsunchained, and Decentraland). Active investors herd to trade NFTs within different collections and follow the market consensus when they are making investment decisions on NFTs listed on OpenSea. Results from macro- and micro-approaches validate and complement one another, plotting a profile on how investors herd in the NFT market.
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