Institutional herding in international markets

Nicole Choi and Hilla Skiba

Journal of Banking & Finance, 2015, vol. 55, issue C, 246-259

Abstract: This paper studies herding behavior of institutional investors in international markets. First, we document the existence of wide-spread herding in 41 countries (referred to as “target countries” hereafter) in the sample. We then examine the relation between contemporaneous institutional demand and future returns and find that institutional herding stabilizes prices. Next, we examine the relation between institutional investors’ herding behavior and the level of information asymmetry in the target countries. We measure the degree of information asymmetry in each target country along five dimensions: (1) stock market development, (2) ease of access to information, (3) corporate transparency, (4) investor rights, and (5) macroeconomic factors that relate to the information environment. We find evidence that institutional investors herd more in markets characterized by low levels of information asymmetry (high level of information transparency). This result suggests that institutional investors’ herding behavior is likely driven by correlated signals from fundamental information. Lastly, we show that price adjustment is faster in informationally transparent markets.

Keywords: Institutional investor; Herding; Information asymmetry; International financial markets (search for similar items in EconPapers)
JEL-codes: G11 G15 G23 Z10 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426615000291
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:55:y:2015:i:c:p:246-259

DOI: 10.1016/j.jbankfin.2015.02.002

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().