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A Note on the Technology Herd: Evidence from Large Institutional Investors

Author

Listed:
  • Esin Cakan

    (Department of Economics, University of New Haven, USA)

  • Rıza Demirer

    (Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Josine Uwilingiye

    (Department of Economics and Econometrics, University of Johannesburg, Auckland Park, South Africa)

Abstract

This paper examines intentional herding among institutional investors with a particular focus on the technology sector that was the driver of the “New Economy” in the United States during the dot-com bubble of the 1990s. Using data on technology stockholdings of 115 large institutional investors, we test the presence of herding by examining linear dependence and feedback between individual investors’ technology stockholdings and that of the aggregate market. Unlike other models to detect herding, we use Geweke (1982) type causality tests that allow us to disentangle spurious herding from intentional herding via tests of bidirectional and instantaneous causality across portfolio positions in technology stocks. After controlling information based (spurious) herding, our tests show that 38 percent of large institutional investors tend to intentionally herd in technology stocks. The findings support the existing literature that investment decisions by large institutional investors are not only driven by fundamental information, but also by cognitive bias that is characterized by intentional herding.

Suggested Citation

  • Esin Cakan & Rıza Demirer & Rangan Gupta & Josine Uwilingiye, 2017. "A Note on the Technology Herd: Evidence from Large Institutional Investors," Working Papers 201761, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201761
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    Cited by:

    1. Bao, Te & Ma, Mengzhong & Wen, Yonggang, 2023. "Herding in the non-fungible token (NFT) market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    2. Elie Bouri & Riza Demirer & Rangan Gupta & Jacobus Nel, 2021. "COVID-19 Pandemic and Investor Herding in International Stock Markets," Risks, MDPI, vol. 9(9), pages 1-11, September.
    3. Andrikopoulos, Panagiotis & Gebka, Bartosz & Kallinterakis, Vasileios, 2021. "Regulatory mood-congruence and herding: Evidence from cannabis stocks," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 842-864.

    More about this item

    Keywords

    Herding; Institutional investors; Causality; Technology stocks;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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