The influence of institutional trading on the herding behavior of individual investors

• Main Authors: Yi-Ching Wang, 王怡靜
• Other Authors: Pei-Gi Shu
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/59790781194792861417

碩士 === 輔仁大學 === 管理學研究所 === 94 === The proportion of foreign investors comprising the market trading has been increasing in the past few years. In this study we explore the issue of whether the trading of foreign investors would attract individual herding of the following day. An analysis from a dataset provided by a renowned brokerage house that covers more than ten million individual trades confirms our postulation that individual investors herd on prior big buy (sell) of institutional investors with this relationship being more prominent for foreign investors. However, individual investors herd on the opposite side of institutional trading, i.e., they exhibit a higher inclination of herding in buys (sells) following a big sell (buy) of institutional investors. The opposite herding referring to the disposition effect and attention-grabbing effect hurts individual trade returns. A trading strategy of simply buying big-buy stocks while shorting big-sell stocks of institutional investors is profitable even after transaction costs. A further analysis of this issue by segregating the sample into stock attributes and individual characteristics shows that both institutional investors as well as individual investors prefer to trade and herd on growth and large-cap stocks. Male and margin individual traders prefer to trade in herd than female and non-margin traders, respectively. The result is consistent with overconfidence hypothesis.