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Does Investment Horizon Matter? Disentangling the Effect of Institutional Herding on Stock Prices

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  • H. Zafer Yüksel

Abstract

This study finds that, over short horizons, herding by short-term institutions promotes price discovery. In contrast, herding by long-term institutions drives stock prices away from fundamentals over the same periods. Furthermore, while the positive predictability of short-term institutional herding for stock prices is more pronounced for small stocks and stocks with high growth opportunities, the negative association between long-term institutional herding and stock prices is stronger for stocks whose valuations are highly uncertain and subjective. Finally, we show that the destabilizing effect of institutional herding persistence documented in the recent literature is entirely driven by persistent herding by long-term institutions.

Suggested Citation

  • H. Zafer Yüksel, 2015. "Does Investment Horizon Matter? Disentangling the Effect of Institutional Herding on Stock Prices," The Financial Review, Eastern Finance Association, vol. 50(4), pages 637-669, November.
    • Handle: RePEc:bla:finrev:v:50:y:2015:i:4:p:637-669
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    File URL: http://hdl.handle.net/10.1111/fire.12080
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    Cited by:

    1. Mustafa Onur Caglayan & Umut Celiker & Edward R. Lawrence, 2021. "Sell‐side analyst recommendation revisions and hedge fund trading before and after regulation fair disclosure," The Financial Review, Eastern Finance Association, vol. 56(3), pages 563-590, August.
    2. Iqbal, Muhammad Sabeeh & Salih, Aslihan & Akdeniz, Levent, 2021. "The Price Impact of Same- and Opposing-Direction Herding by Institutions with Different Investment Horizons," Finance Research Letters, Elsevier, vol. 40(C).
    3. Iqbal, Muhammad Sabeeh & Salih, Aslihan & Akdeniz, Levent, 2023. "Institutions and the book-to-market effect: The role of investment horizon," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 140-153.
    4. Mustafa O. Caglayan & Umut Celiker & Gokhan Sonaer, 2022. "Disagreement between hedge funds and other institutional investors and the cross‐section of expected stock returns," The Financial Review, Eastern Finance Association, vol. 57(3), pages 663-689, August.

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