Do Institutional Investors Herd in Emerging Markets? Evidence from the Taiwan Stock Market

Abstract

This study employs daily trading data to examine the herding behavior of institutional investors in Taiwan’s stock market. Our results show evidence of herding for institutional investors; indeed, they would follow both other institutional trades and their own trades. We also find that institutional investors are not driven principally by impulse or instinct and that “herded into” stocks do not exhibit unusual return reversals. Moreover, the intensity of herding is negatively related to firm size, which suggests that institutional herding in Taiwan’s stock market is driven primarily by information cascades.

Keywords: Institutional investor, Herding behavior, Information cascade, Emerging markets

JEL Classifications: G11, G20, N25