The Price Impact of Institutional Herding

Dasgupta, Amil; Prat, Andrea; Verardo, Michela

doi:10.2139/ssrn.1348393

Cited by 65 publications

(53 citation statements)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…More recently, Vayanos and Woolley (2012) have studied such a model to explain the momentum effect in stock returns. Prat (2011), Dasgupta, Prat, andVerardo (2012), and Guerreri and Kondor (2012) present theoretical papers showing how career concerns of fund managers, or their desire to maintain reputations, affects asset market equilibrium. In this paper, we consider the macroeconomic implications of the flow-performance relationship.…”

Section: Bankers Equity Capital and The Flow-performance Relationshipmentioning

confidence: 99%

A Macroeconomic Framework for Quantifying Systemic Risk

Krishnamurthy

2014

View full text Add to dashboard Cite

Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. We present a macroeconomic model with a financial intermediary sector subject to an equity capital constraint. The novel aspect of our analysis is that the model produces a stochastic steady state distribution for the economy, in which only some of the states correspond to systemic risk states. The model allows us to examine the transition from "normal" states to systemic risk states. We calibrate our model and use it to match the systemic risk apparent during the 2007/2008 financial crisis. We also use the model to compute the conditional probabilities of arriving at a systemic risk state, such as 2007/2008. Finally, we show how the model can be used to conduct a macroeconomic "stress test" linking a stress scenario to the probability of systemic risk states.

show abstract

Section: Bankers Equity Capital and The Flow-performance Relationshipmentioning

confidence: 99%

A Macroeconomic Framework for Quantifying Systemic Risk

Krishnamurthy

2014

View full text Add to dashboard Cite

show abstract

“…A central theme in that literature is that when poor performance triggers outflows because of an exogenous performance-flow relationship Vishny 1997, Vayanos 2004), a lower bound on the equity stake of fund managers (He and Krishnamurthy 2008ab), or learning about managerial ability , Dasgupta, Prat and Verardo 2008, Guerreri and Kondor 2008, Malliaris and Yan 2008, the effects of exogenous shocks on prices are amplified. 10…”

Section: Introductionmentioning

confidence: 99%

An Institutional Theory of Momentum and Reversal

2013

View full text Add to dashboard Cite

We propose a rational theory of momentum and reversal based on delegated portfolio management. A competitive investor can invest through an index fund or an active fund run by a manager with unknown ability. Following a negative cashflow shock to assets held by the active fund, the investor updates negatively about the manager's ability and migrates to the index fund. While prices of assets held by the active fund drop in anticipation of the investor's outflows, the drop is expected to continue, leading to momentum. Because outflows push prices below fundamental values, expected returns eventually rise, leading to reversal. Fund flows generate comovement and lead-lag effects, with predictability being stronger for assets with high idiosyncratic risk. We derive explicit solutions for asset prices, within a continuous-time normal-linear equilibrium.

show abstract

“…Dasgupta, Prat and Verardo (2011) demonstrate that persistent institutional trading negatively predicts long-term returns. This is because persistently sold stocks outperform persistently bought stocks at long horizons; however, the negative relationship between returns and institutional trade persistence is focused among smaller stocks and is stronger for stocks with higher institutional ownership.…”

Section: ⅲ a Brief Literature Reviewmentioning

confidence: 88%

Herding in Large Cap Stocks during Bull Markets: Evidence from Dow Jones Industrial Stocks

Kang¹,

Pyun²

2014

Glob Bus Financ Rev

View full text Add to dashboard Cite

A B S T R A C TWe investigate evidence of investor herding in individual component stocks of the Dow Jones Industrial Index. In the correlation analysis, all stocks show positive correlations between their price and trading volume changes. In the dummy regression, most stocks in their equal-and value-weights show strong herd behavior in the upper values relative to their moving average prices. In log-log regression, we find a diminishing marginal effect in the upper values of their moving average prices. We find that the greater the dispersion of a stock away from its moving average line, the stronger the evidence of true herding in the movement of its price and concomitant change in trading volume.

show abstract

The Price Impact of Institutional Herding

Cited by 65 publications

References 47 publications

A Macroeconomic Framework for Quantifying Systemic Risk

A Macroeconomic Framework for Quantifying Systemic Risk

An Institutional Theory of Momentum and Reversal

Herding in Large Cap Stocks during Bull Markets: Evidence from Dow Jones Industrial Stocks

Contact Info

Product

Resources

About