Causes and consequences of short-term institutional herding
AbstractThis paper provides new evidence on the causes and consequences of herding by institutional investors. Using a comprehensive database of every transaction made by financial institutions in the German stock market, we show that institutions exhibit herding behavior on a daily basis. Herding intensity depends on stock characteristics including past returns and volatility. Return reversals indicate a destabilizing impact of herds on stock prices in the short term. Results from panel regressions suggest that herding is mainly unintentional and partly driven by the use of similar risk models. Our findings confirm the importance of macro-prudential aspects for banking regulation.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/jbf
Investor behavior; Institutional trading; Stock prices; Herding;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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