47 Pages Posted: 25 Mar 2008
Date Written: 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.
Keywords: Herding, Institutional Investors, Return Reversal
JEL Classification: G10, G11, G14
Suggested Citation: Suggested Citation
Puckett, Andy and Yan, Xuemin Sterling, Short-Term Institutional Herding and its Impact on Stock Prices (March 18, 2008). Available at SSRN: https://ssrn.com/abstract=1108092 or http://dx.doi.org/10.2139/ssrn.1108092