Institutional Herding and Asset Price: The Role of Information

61 Pages Posted: 13 Nov 2010 Last revised: 26 Oct 2015

See all articles by Jonathan Clarke

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

Chayawat Ornthanalai

University of Toronto - Rotman School of Management

Ya Tang

McGill University - Desautels Faculty of Management

Date Written: October 30, 2014

Abstract

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

Clarke, Jonathan and Ornthanalai, Chayawat and Tang, Ya, Institutional Herding and Asset Price: The Role of Information (October 30, 2014). Rotman School of Management Working Paper No. 1707868, Available at SSRN: https://ssrn.com/abstract=1707868 or http://dx.doi.org/10.2139/ssrn.1707868

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4929 (Phone)
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HOME PAGE: http://mgt.gatech.edu/directory/clarke.html

Chayawat Ornthanalai (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Ya Tang

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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