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Did institutions herd during the internet bubble?

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  • Vivek Singh

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Abstract

We examine the trading behavior of institutional investors during the internet bubble and crash of 1998–2001, and its impact on stock prices. Similar to some recent findings concerning the trading behavior of hedge funds and NASDAQ 100 stocks, we find that during the bubble all types of institutions herded with great intensity into internet stocks for a comprehensive sample of institutional investors and internet stocks. In addition to this, we present three entirely new results. First, institutional herding was much greater than what can be explained by momentum trading. Second, institutions as a group continued to increase their holdings of internet stocks for two quarters past the market peak during the first quarter of 2000, and three quarters past the peak for individual stock prices, suggesting that institutions were unable to time the price peaks. Finally and most importantly, we find positive abnormal returns contemporaneous with institutional herding and negative abnormal returns (reversals) at the point that herding ceased. This finding suggests that institutions’ trading created temporary price pressures, and may have contributed to the bubble. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Vivek Singh, 2013. "Did institutions herd during the internet bubble?," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 513-534, October.
  • Handle: RePEc:kap:rqfnac:v:41:y:2013:i:3:p:513-534
    DOI: 10.1007/s11156-012-0320-1
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    References listed on IDEAS

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    Cited by:

    1. Demirer, Rıza & Lien, Donald & Zhang, Huacheng, 2015. "Industry herding and momentum strategies," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 95-110.
    2. Richard Chung & Scott Fung & Jayendu Patel, 2015. "Alpha–beta–churn of equity picks by institutional investors and the robust superiority of hedge funds," Review of Quantitative Finance and Accounting, Springer, vol. 45(2), pages 363-405, August.
    3. Ashish Kumar Garg & Subrata Kumar Mitra & Dilip Kumar, 2016. "Do foreign institutional investors herd in emerging markets? A study of individual stocks," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 281-300, September.
    4. Mark Freeman & Ben Groom, 2015. "Using equity premium survey data to estimate future wealth," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 665-693, November.
    5. repec:eee:finana:v:53:y:2017:i:c:p:25-36 is not listed on IDEAS

    More about this item

    Keywords

    Herding; Internet bubble; Institutional trading; G12; G14;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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