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Herding of Institutional Traders

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  • Stephanie Kremer
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    Abstract

    This paper sheds new light on herding of institutional investors by using a unique and superior database that identifies every transaction of financial institutions. First, the analysis reveals herding behavior of institutions. Second, the replica- tion of the analysis with low-frequent and anonymous transaction data, on which the bulk of literature is based, indicates an overestimation of herding by previous studies. Third, our results suggest that herding by large financial institutions is not intentional but results from sharing the same preference and investment style. Fourth, a panel analysis shows that herding on the sell side in stocks is positively related to past returns and past volatility while herding on the buy side is nega- tively related to past returns. In contrast to the literature, this indicates that large financial institutions do not show positive feedback strategies.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2010-025.pdf
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    Bibliographic Info

    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-025.

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    Length: 48 pages
    Date of creation: Apr 2010
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2010-025

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    Related research

    Keywords: Investor Behavior; Institutional Trading; Stock Prices;

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