We document strong positive correlation between changes in institutional ownership and returns measured over the same period. The result suggests that either institutional investors positive-feedback trade more than individual investors or institutional herding impacts prices more than herding by individual investors. We find evidence that both factors play a role in explaining the relation. We find no evidence, however, of return mean-reversion in the year following large changes in institutional ownership - stocks institutional investors purchase subsequently out-perform those they sell. Moreover, institutional herding is positively correlated with lag returns and appears to be related to stock return momentum.
ASJC Scopus subject areas
- Economics and Econometrics