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Do Institutional Investors Destabilize Stock Prices? Evidence on Herding and Feedback Trading

Josef Lakonishok
University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Andrei Shleifer
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

September 1991

NBER Working Paper No. W3846

Abstract:     
This paper uses a new data set of quarterly portfolio holdings of 769 all-equity pension funds between 1985 and 1989 to evaluate the potential effect of their trading on stock prices. We address two aspects of trading by money managers: herding, which refers to buying (selling) the same stocks as other managers buy (sell) at the same time; and positive-feedback trading, which refers to buying winners and selling losers. These two aspects of trading are commonly a part of the argument that institutions destabilize stock prices. At the level of individual stocks at quarterly frequencies, we find no evidence of substantial herding or positive-feedback trading by pension fund managers, except in small stocks. Also, there is no strong cross-sectional correlation between changes in pension funds' holdings of a stock and its abnormal return.

JEL Classifications: S2

Working Paper Series

Date posted: April 27, 2000 ; Last revised: January 23, 2002

Suggested Citation

Lakonishok, Josef, Shleifer, Andrei and Vishny, Robert W.,Do Institutional Investors Destabilize Stock Prices? Evidence on Herding and Feedback Trading(September 1991). NBER Working Paper No. W3846. Available at SSRN: http://ssrn.com/abstract=226729


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Contact Information

Josef Lakonishok (Contact Author)
University of Illinois at Urbana-Champaign ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Andrei Shleifer
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-5046 (Phone)
617-496-1708 (Fax)
HOME PAGE: http://www.economics.harvard.edu/~ashleife/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels Belgium
HOME PAGE: http://www.ecgi.org
Robert W. Vishny
University of Chicago - Booth School of Business ( email )
Chicago, IL 60637
United States
312-702-2522 (Phone)
312-702-0118 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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