Institutional Herding and Investor Sentiment
36 Pages Posted: 7 Mar 2024
Date Written: February 2, 2024
Abstract
We investigate the role of investor sentiment in institutional herding behavior and its impact on stock prices. We find that institutional investors exhibit more herding behavior during periods of high sentiment, which has a significant impact on stock prices. Our results show that herding has a stabilizing effect on the stock market when investor sentiment is low, while it causes price distortions when sentiment is high. We also show that the impact of sentiment on price is particularly pronounced for small, non-profitable, low tangibility, high-growth firms.
Keywords: Institutional herding, investor sentiment, stock market, price impact, stabilizing effect
JEL Classification: G23, G40
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