Institutional herding in the corporate bond market
We find substantial herding in U.S. corporate bonds among bond fund managers, much higher than that previously documented for the equity market. Herding is generally stronger among illiquid bonds, and buy herding and sell herding are driven by different factors. In particular, sell herding increases on negative news about bond ratings and corporate earnings. Interestingly, increases in ex-post transparency in corporate bond trading through Trade Reporting and Compliance Engine (TRACE) led to higher buy herding but not to higher sell herding. Finally, we find significant return reversals in the post-herding quarters, especially for sell herding and for junk bonds. Price reversal is most prominent when funds herd to sell illiquid bonds, which suggests that temporary price pressure is the reason behind price reversal.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, 04.
- Alexander, Gordon J. & Edwards, Amy K. & Ferri, Michael G., 2000. "The determinants of trading volume of high-yield corporate bonds," Journal of Financial Markets, Elsevier, vol. 3(2), pages 177-204, May.
- Richard W. Sias, 2004. "Institutional Herding," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 165-206.
- Dasgupta, Amil & Prat, Andrea & Verardo, Michela, 2007.
"Institutional Trade Persistence and Long-Term Equity Returns,"
CEPR Discussion Papers
6374, C.E.P.R. Discussion Papers.
- Amil Dasgupta & Andrea Prat & Michela Verardo, 2011. "Institutional Trade Persistence and Long‐Term Equity Returns," Journal of Finance, American Finance Association, vol. 66(2), pages 635-653, 04.
- Amil Dasgupta & Andrea Prat & Michela Verardo, 2010. "Institutional Trade Persistence and Long-term Equity Returns," FMG Discussion Papers dp661, Financial Markets Group.
- Peter D. Easton & Steven J. Monahan & Florin P. Vasvari, 2009. "Initial Evidence on the Role of Accounting Earnings in the Bond Market," Journal of Accounting Research, Wiley Blackwell, vol. 47(3), pages 721-766, 06.
- Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
- Froot, Kenneth A & Scharftstein, David S & Stein, Jeremy C, 1992.
" Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation,"
Journal of Finance,
American Finance Association, vol. 47(4), pages 1461-84, September.
- Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1990. "Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," NBER Working Papers 3250, National Bureau of Economic Research, Inc.
- Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
- Jegadeesh N. & Titman S., 1995. "Short-Horizon Return Reversals and the Bid-Ask Spread," Journal of Financial Intermediation, Elsevier, vol. 4(2), pages 116-132, April.
- Scharfstein, David. & Stein, Jeremy C., 1988.
"Herd behavior and investment,"
WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
- Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
- Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-39, September.
- Falkenstein, Eric G, 1996. " Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings," Journal of Finance, American Finance Association, vol. 51(1), pages 111-35, March.
- Khang, Kenneth & Dolly King, Tao-Hsien, 2004. "Return reversals in the bond market: Evidence and causes," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 569-593, March.
- David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
- Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
- Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 1994. " Security Analysis and Trading Patterns When Some Investors Receive Information before Others," Journal of Finance, American Finance Association, vol. 49(5), pages 1665-98, December.
- John R. Nofsinger & Richard W. Sias, 1999. "Herding and Feedback Trading by Institutional and Individual Investors," Journal of Finance, American Finance Association, vol. 54(6), pages 2263-2295, December.
- Gebhardt, William R. & Hvidkjaer, Soeren & Swaminathan, Bhaskaran, 2005. "Stock and bond market interaction: Does momentum spill over?," Journal of Financial Economics, Elsevier, vol. 75(3), pages 651-690, March.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:1071. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs)
If references are entirely missing, you can add them using this form.