Institutional Herding and Asset Price: The Role of Information
61 Pages Posted: 13 Nov 2010 Last revised: 26 Oct 2015
Date Written: October 30, 2014
We study the price impact of daily institutional herding induced by information events. Using analyst recommendation changes as a proxy, we find that institutional herding on recommendation changes is short–lived. Daily institutional herding, on average, destabilizes price. However, herding accompanied by information arrival has the opposite effect. We find no evidence of price reversal when institutional investors herd in the direction of the recommendation change, but rather herding speeds up price adjustment. Consistent with informational herding models, we provide evidence that efficient price discovery and institutional herding are not mutually exclusive.
Keywords: Institutional trading, herding, market efficiency, analysts' recommendations
JEL Classification: G14
Suggested Citation: Suggested Citation