Dasgupta, Amil 
ORCID: 0000-0001-8474-9470, Prat, Andrea and Verardo, Michela
(2011)
The price impact of institutional herding.
Review of Financial Studies, 24 (3).
pp. 892-925.
ISSN 0893-9454
Abstract
We develop a simple model of the price impact of institutional herding. The empirical literature indicates that institutional herding positively predicts short-term returns but negatively predicts long-term returns. We offer a theoretical resolution to this dichotomy. In our model, career-concerned money managers trade with security dealers endowed with market power and exhibit an endogenous tendency to imitate past trades. This tendency is exploited by dealers and thus affects prices. In equilibrium, institutional herding positively predicts short-term returns but negatively predicts long-term returns. Our article also generates several new, testable predictions that link institutional herding with the time-series properties of returns and volume.
| Item Type: | Article |
|---|---|
| Official URL: | http://rfs.oxfordjournals.org/ |
| Additional Information: | © 2011 The Authors |
| Divisions: | Economics Finance STICERD |
| Subjects: | H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G0 - General > G00 - General G - Financial Economics > G2 - Financial Institutions and Services > G20 - General |
| Date Deposited: | 08 Apr 2011 14:00 |
| Last Modified: | 23 Apr 2024 02:21 |
| URI: | http://eprints.lse.ac.uk/id/eprint/33935 |
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