Institutional Herding and Investor Sentiment

36 Pages Posted: 7 Mar 2024

See all articles by Xu Guo

Xu Guo

Shenzhen University - College of Economics

Chen Gu

Shanghai Business School - Research Center of Finance

Chengping Zhang

George Fox University

Shenru Li

Macau University of Science and Technology

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

Suggested Citation

Guo, Xu and Gu, Chen and Zhang, Chengping and Li, Shenru, Institutional Herding and Investor Sentiment (February 2, 2024). Journal of Financial Markets, 2024, https://doi.org/10.1016/j.finmar.2024.100891, Available at SSRN: https://ssrn.com/abstract=4714257 or http://dx.doi.org/10.2139/ssrn.4714257

Xu Guo

Shenzhen University - College of Economics ( email )

5th Floor, Wenke Building
3688 Nanhai Road
Shenzhen, Guangdong 518060
China

Chen Gu

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Chengping Zhang (Contact Author)

George Fox University ( email )

414 N. Meridian Street
Newberg, OR 97132
United States

Shenru Li

Macau University of Science and Technology ( email )

China

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