Herding, Heterogeneity, and Momentum Trading of Institutional Investors Across Asset Classes
DOI:
https://doi.org/10.6000/1929-7092.2013.02.32Keywords:
Herding, momentum trading, feedback trading, institutional investorsAbstract
This paper examines herding, heterogeneity, and momentum trading of institutional investors in Israel across a broad variety of financial assets. While previous studies typically focus on stocks only, we examine herding patterns, heterogeneity, and momentum trading of institutional investors in five asset classes. We find that during the sample period (1/2002 – 12/2011) large investors tended to herd more than medium and small-size investors. In contrast, small investors used momentum trading patterns more than medium and large-size investors. Homogeneity was found among large investors, especially pension funds, and during the first half of the 2000s, when investors purchased corporate bonds at the expense of government bonds. This phenomenon ended upon the beginning of the subprime crisis and against the backdrop of the financial difficulties of the bond issuers. In those years, panicked investors withdrew funds from the most liquid institutions (study funds), while infusing funds to pension and provident funds due to legally binding arrangements. We attribute some of the heterogeneous trading of the institutional investors, to those factors.References
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http://dx.doi.org/10.1016/0304-405X(92)90023-Q
Uchida H., and R., Nakagawa (2007), ""Herd Behavior in the Japanese Loan Market: Evidence from Bank Panel Data"", Journal of Financial Intermediation 16: 555-583.
http://dx.doi.org/10.1016/j.jfi.2007.03.007
Venezia, I., A. Nashikkar, Z. Shapira (2011), ""Firm Specific and Macro Herding by Professional and Amateur Investors and Their Effect on Market Volatility"", Journal of Banking and Finance, 35: 1599- 1609.
http://dx.doi.org/10.1016/j.jbankfin.2010.11.015
Wermers, R. (1999), ""Mutual Fund Herding and the Impact on Stock Prices"", Journal of Finance, 54: 581-622.
http://dx.doi.org/10.1111/0022-1082.00118
Yan, X. and Z. Zhang (2009), ""Institutional Investors and Equity Returns: Are Short-term Institutions Better Informed?"", Review of Financial Studies, 22: 893-924.
http://dx.doi.org/10.1093/revfin/hhl046
http://dx.doi.org/10.1111/1540-6261.00502
Bikhchandani S. and S. Sharma (2000), ""Herd Behavior in Financial Markets"" International Monetary Fund Staff Paper, 47(3): 279 – 310.
Choi, J.J., H. Levy, and S.S. Yoo (2012), ""Are Individual or Institutional Investors the Agents of ?Bubbles?""? SSRN: http://ssrn.com/abstract=2023766.
Dasgupta A., A. Prat, and M. Verardo (2011), ""The Price Impact of Institutional Herding"", Review of Financial Studies, 24: 892-925.
http://dx.doi.org/10.1093/rfs/hhq137
Gompers, P.A. and A. Metrick (2001), ""Institutional Investors and Equity Prices"", The Quarterly Journal of Economics, 116: 229-259.
http://dx.doi.org/10.1162/003355301556392
Grinblatt, M., S. Titman, and R. Wermers (1995), ""Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior"", American Economic Review, 85(5): 1088-1105.
McAleer, M. and K. Radalj (2013), Herding, Information Cascades and Volatility Spillover in Futures Markets, Journal of Reviews on Global Economics 2, 307-329.
Lakonishok, J., A. Shleifer, and R.W., and Vishny (1992), ""The Impact of Institutional Trading on Stock Prices"", Journal of Financial Economics, 32: 23-43.
http://dx.doi.org/10.1016/0304-405X(92)90023-Q
Uchida H., and R., Nakagawa (2007), ""Herd Behavior in the Japanese Loan Market: Evidence from Bank Panel Data"", Journal of Financial Intermediation 16: 555-583.
http://dx.doi.org/10.1016/j.jfi.2007.03.007
Venezia, I., A. Nashikkar, Z. Shapira (2011), ""Firm Specific and Macro Herding by Professional and Amateur Investors and Their Effect on Market Volatility"", Journal of Banking and Finance, 35: 1599- 1609.
http://dx.doi.org/10.1016/j.jbankfin.2010.11.015
Wermers, R. (1999), ""Mutual Fund Herding and the Impact on Stock Prices"", Journal of Finance, 54: 581-622.
http://dx.doi.org/10.1111/0022-1082.00118
Yan, X. and Z. Zhang (2009), ""Institutional Investors and Equity Returns: Are Short-term Institutions Better Informed?"", Review of Financial Studies, 22: 893-924.
http://dx.doi.org/10.1093/revfin/hhl046
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Published
2013-12-19
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Ben-Horin, M., & Kedar-Levy, H. (2013). Herding, Heterogeneity, and Momentum Trading of Institutional Investors Across Asset Classes. Journal of Reviews on Global Economics, 2, 455–466. https://doi.org/10.6000/1929-7092.2013.02.32
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