“Institutions’ Investment Horizon, Herding, and long Term Returns”
by M.Sabeeh Iqbal
Ph.D Candidate, Bilkent University
The financial institutions have the tendency to herd but their herding may be informational or behavioral depending upon the type of institutions. Short horizon institutions trade on superior information unlike long horizon institutions which trade on stale information (or behavioral reasons). Therefore, herding by different institutions have different price implications for securities. We find that herding by long horizon institutions is negatively related to long horizon returns and herding by short horizon institutions have insignificant impact on long horizon returns. Our results are robust to various control variables which are known to affect returns, to sub-periods, and to use of returns of different horizons as dependent variable. These evidence suggest that short/long horizon institutions’ herding is informational/behavioral.