Short-term Institutional Herding and Its Impact on Stock Prices

47 Pages Posted: 20 Mar 2007 Last revised: 25 Mar 2008

See all articles by Andy Puckett

Andy Puckett

University of Tennessee, Knoxville

Xuemin Sterling Yan

Lehigh University - College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 18, 2008

Abstract

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: Institutions, Herding, Trading, Behavior

JEL Classification: G10, G11, G14

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=972254 or http://dx.doi.org/10.2139/ssrn.972254

Andy Puckett (Contact Author)

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

Xuemin Sterling Yan

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

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