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Short-Term Institutional Herding and its Impact on Stock Prices

Andy Puckett

University of Tennessee, Knoxville

Xuemin Sterling Yan

University of Missouri - Columbia

March 18, 2008

Using the trades of 776 institutional investors from 1999 to 2004, we examine the existence and impact of short-term institutional herding. We report robust evidence of herding at the weekly frequency using the Lakonishok, Shleifer, and Vishny (1992) measure and the Sias (2004) measure. More importantly, we find that these weekly herds significantly affect the efficiency of security prices. We document strong evidence of return reversals following short-term sell herds and weak evidence of return continuations following short-term buy herds. Our results are consistent with short-term sell herds being motivated by behavioral considerations and driving asset prices away from fundamental values. Alternatively, the absence of return reversals following short-term buy herds suggest that these herds are information based and help impound new information into security prices.

Number of Pages in PDF File: 47

Keywords: Herding, Institutional Investors, Return Reversal

JEL Classification: G10, G11, G14

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Date posted: March 25, 2008  

Suggested Citation

Puckett, Andy and Yan, Xuemin Sterling, Short-Term Institutional Herding and its Impact on Stock Prices (March 18, 2008). Available at SSRN: http://ssrn.com/abstract=1108092 or http://dx.doi.org/10.2139/ssrn.1108092

Contact Information

Andy Puckett (Contact Author)
University of Tennessee, Knoxville ( email )
437 Stokely Managment Center
Knoxville, TN 37996
United States
Xuemin Sterling Yan
University of Missouri - Columbia ( email )
Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)
HOME PAGE: http://business.missouri.edu/yanx/
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References:  41
Citations:  13

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