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Investor Behavior over the Rise and Fall of Nasdaq

Listed author(s):
  • John M. Griffin


    (Yale University, School of Management)

  • Jeffrey H. Harris


    (University of Delaware, Alfred Lerner College of Business and Economics, Department of Finance)

  • Selim Topaloglu


    (Queen's University (Canada), School of Business)

The large theoretical literature about bubbles includes models where naive individuals cause excessive price movements and smart money trades against (and potentially eliminates) a bubble or where sophisticated investors follow market prices and help drive a bubble. We examine these competing views by focusing on investor activity over the spectacular rise and fall of Nasdaq from September 1999 through 2001. We find that both institutional ownership levels and volume on Nasdaq were high. Institutions bought shares from individuals the day after market up-moves and institutions sold on net following market dips. These patterns are pervasive throughout the market run-up and subsequent crash period. This short-term institutional trend-chasing behavior does not appear to be mechanically induced by flows into and out of mutual funds. Our evidence supports the view that institutions contributed more than individuals to the Nasdaq rise and fall.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm431.

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Date of creation: 24 Oct 2003
Handle: RePEc:ysm:somwrk:ysm431
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