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Is herding spurious or intentional? Evidence from analyst recommendation revisions and sentiment

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  • Guo, Jiaqi
  • Holmes, Phil
  • Altanlar, Ali

Abstract

Using institutional holdings data for 1993–2015, we investigate whether institutional herding is spurious or intentional by analysing the impact on herding of analyst recommendation revisions and sentiment. In addition to examining their effect separately, we consider the impact of their interaction. Utilising the Sias method, we develop competing hypotheses concerning spurious and intentional herding, an issue of direct interest to fund investors, given the principal-agent relationship inherent in fund management. Results strongly suggest herding is spurious. Analysis of the relationship between herding and subsequent returns, and findings from robustness tests add further support.

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  • Guo, Jiaqi & Holmes, Phil & Altanlar, Ali, 2020. "Is herding spurious or intentional? Evidence from analyst recommendation revisions and sentiment," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301836
    DOI: 10.1016/j.irfa.2020.101539
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    4. Fei, Tianlun & Liu, Xiaoquan, 2021. "Herding and market volatility," International Review of Financial Analysis, Elsevier, vol. 78(C).
    5. Lai, Chong, 2022. "Investment dynamics of fund managers under evolutionary games," International Review of Financial Analysis, Elsevier, vol. 82(C).
    6. Wanidwaranan, Phasin & Padungsaksawasdi, Chaiyuth, 2022. "Unintentional herd behavior via the Google search volume index in international equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    7. Wang, Hu & Li, Shouwei & Ma, Yuyin, 2021. "Herding in Open-end Funds: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    8. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    9. Ivasiuc Arina, 2023. "Herding Behavior in Frontier Nordic Countries," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 68(1), pages 21-41, April.
    10. Li, Zhimin & Zhu, Weidong & Wu, Yong & Wu, Zihao, 2024. "Research on information fusion of security analysts’ stock recommendations based on two-dimensional D-S evidence theory," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    Herding; Sentiment; Analyst recommendation revisions; Institutional investors; Information;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G40 - Financial Economics - - Behavioral Finance - - - General

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