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Institutional industry herding

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  • Choi, Nicole
  • Sias, Richard W.

Abstract

We examine whether institutional investors follow each other into and out of the same industries. Our empirical results reveal strong evidence of institutional industry herding. The cross-sectional correlation between the fraction of institutional traders buying an industry this quarter and the fraction buying last quarter, for example, averages 40%. Additional tests suggest that correlated signals primarily drive institutional industry herding. Our results also provide empirical support for "style investing" models.

Suggested Citation

  • Choi, Nicole & Sias, Richard W., 2009. "Institutional industry herding," Journal of Financial Economics, Elsevier, vol. 94(3), pages 469-491, December.
    • Handle: RePEc:eee:jfinec:v:94:y:2009:i:3:p:469-491
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