The Price Impact of Institutional Herding
We develop a simple model of the price impact of institutional herding. The empirical literature indicates that institutional herding positively predicts short-term returns but negatively predicts long-term returns. We offer a theoretical resolution to this dichotomy. In our model, career-concerned...
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| Veröffentlicht in: | The Review of financial studies 2011-03, Vol.24 (3), p.892-925 |
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| container_end_page | 925 |
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| container_title | The Review of financial studies |
| container_volume | 24 |
| creator | Dasgupta, Amil Prat, Andrea Verardo, Michela |
| description | We develop a simple model of the price impact of institutional herding. The empirical literature indicates that institutional herding positively predicts short-term returns but negatively predicts long-term returns. We offer a theoretical resolution to this dichotomy. In our model, career-concerned money managers trade with security dealers endowed with market power and exhibit an endogenous tendency to imitate past trades. This tendency is exploited by dealers and thus affects prices. In equilibrium, institutional herding positively predicts short-term returns but negatively predicts long-term returns. Our article also generates several new, testable predictions that link institutional herding with the time-series properties of returns and volume. |
| doi_str_mv | 10.1093/rfs/hhq137 |
| format | Article |
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| ispartof | The Review of financial studies, 2011-03, Vol.24 (3), p.892-925 |
| issn | 0893-9454 1465-7368 |
| language | eng |
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| source | Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current) |
| subjects | Asset management Economic theory Empirical evidence Equilibrium Financial theory Herding Herds Institutional investments Institutions Investment advisors Investment returns Investors Liquidation value Market prices Modelling Price momentum Public image management Rates of return Securities trading Strategic management Studies Time series Trade |
| title | The Price Impact of Institutional Herding |
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