Does Investment Horizon Matter? Disentagling the Effect of Institutional Herding on Stock Prices

Posted: 9 Oct 2013

See all articles by H. Zafer Yuksel

H. Zafer Yuksel

Texas A&M University Corpus Christi

Date Written: July 1, 2013

Abstract

Exiting studies document that institutional herding has a stabilizing effect on stock prices, as stock returns over one- to three-quarter horizons are positively correlated with herding. The literature also shows that short-term institutions are better informed than long-term institutions. Motivated by heterogeneity in the level of informativeness between short-term and long-term institutional trading, this study disentangles the price impact of short-term and long-term institutional herding. Our results show that herding by short-term institutions promotes price discovery. In contrast, herding by long-term institutions drives stock prices away from fundamentals. Taken together, our findings suggest that the stabilizing effect documented in the existing literature is mainly driven by short-term institutions, and the destabilizing effect of long-term institutional herding persists up to eight quarters.

Keywords: Institutional Herding, Investment Horizon, Price Impact

JEL Classification: G11, G12, G14, G20

Suggested Citation

Yuksel, H. Zafer, Does Investment Horizon Matter? Disentagling the Effect of Institutional Herding on Stock Prices (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=2337165 or http://dx.doi.org/10.2139/ssrn.2337165

H. Zafer Yuksel (Contact Author)

Texas A&M University Corpus Christi ( email )

6300 ocean drive
corpus christi, TX TX 78414
United States

HOME PAGE: http://https://cob.tamucc.edu/About_Us/faculty_staff_directory.html

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