Institutional Overcrowding Everyday

We operationalize Stein's ( 2009 ) overcrowding concept in the context of investor response to daily stock return shocks and examine its underlying behavioral motivation. We define chasing at the overshooting point as evidence of overcrowding. Using trading data by investor type from Korea, we...

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Veröffentlicht in:The journal of behavioral finance 2023-01, Vol.24 (1), p.1-21
Hauptverfasser: Ülkü, Numan, Onishchenko, Olena
Format: Artikel
Sprache:eng
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Zusammenfassung:We operationalize Stein's ( 2009 ) overcrowding concept in the context of investor response to daily stock return shocks and examine its underlying behavioral motivation. We define chasing at the overshooting point as evidence of overcrowding. Using trading data by investor type from Korea, we find that while institutional investors display informed trading, they fail to recognize the predictable overshooting point when responding to return shocks and/or accompanying information, resulting in an overcrowded response. The main consequence is suffering a cost of immediacy. Size of institutional crowding is positively related to the size of initial response and institutional investor population, but unrelated to future returns, with no evidence of adapting to past performance; collectively consistent with overcrowding driven by aversion to miss out.
ISSN:1542-7560
1542-7579
DOI:10.1080/15427560.2021.1892678