Causes and consequences of short-term institutional herding
Stephanie Kremer and
Dieter Nautz ()
Journal of Banking & Finance, 2013, vol. 37, issue 5, 1676-1686
This paper provides new evidence on the causes and consequences of herding by institutional investors. Using a comprehensive database of every transaction made by financial institutions in the German stock market, we show that institutions exhibit herding behavior on a daily basis. Herding intensity depends on stock characteristics including past returns and volatility. Return reversals indicate a destabilizing impact of herds on stock prices in the short term. Results from panel regressions suggest that herding is mainly unintentional and partly driven by the use of similar risk models. Our findings confirm the importance of macro-prudential aspects for banking regulation.
Keywords: Investor behavior; Institutional trading; Stock prices; Herding (search for similar items in EconPapers)
JEL-codes: G11 G24 C23 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:5:p:1676-1686
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