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Institutional herding and investor sentiment

Author

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  • Guo, Xu
  • Gu, Chen
  • Zhang, Chengping
  • Li, Shenru

Abstract

We investigate the role of investor sentiment in institutional herding behavior and its impact on stock prices. We find that institutional investors exhibit more herding behavior during periods of high sentiment, which has a significant impact on stock prices. Our results show that herding has a stabilizing effect on the stock market when investor sentiment is low, while it causes price distortions when sentiment is high. We also show that the impact of sentiment on price is particularly pronounced for small, non-profitable, low tangibility, high-growth firms.

Suggested Citation

  • Guo, Xu & Gu, Chen & Zhang, Chengping & Li, Shenru, 2024. "Institutional herding and investor sentiment," Journal of Financial Markets, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finmar:v:68:y:2024:i:c:s1386418124000090
    DOI: 10.1016/j.finmar.2024.100891
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    Cited by:

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    2. Zhang, Shuonan & Cai, Yike & Chen, Rongda & Wang, Shengnan & Zhang, Xinyu & Ren, He, 2024. "Burial objects” or “Birds of a feather”: The contagion effect of financial violations in business groups——The evidence from China," Emerging Markets Review, Elsevier, vol. 62(C).
    3. Radi, Sherrihan & Gebka, Bartosz & Kallinterakis, Vasileios, 2024. "The wisdom of the madness of crowds: Investor herding, anti-herding, and stock-bond return correlation," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 966-995.

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    More about this item

    Keywords

    Institutional herding; Investor sentiment; Stock market; Price impact; Stabilizing effect;
    All these keywords.

    JEL classification:

    • 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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