ABSTRACT
There is increasing empirical evidence that institutional investors engage in feedback trading strategies. For example, Nofsinger and Sias (1999) find a positive relationship between the firm’s annual ownership-change by institutional investors and their annual holding-period stock returns. Based on this observation, they contend that institutional investor herding impacts stock prices. Further, by examining the year prior to institutional buy-herding, they find that institutions increase their stakes in firms that had prior positive abnormal returns. When examining the year after herding, they find that these same firms continue to experience positive abnormal returns. The former finding suggests that institutions are positive feedback (or momentum) traders and the latter finding suggests that institutional herding is stabilizing.
