Document Type

Article

Publication Date

2016

Subject: LCSH

Institutional investors, Bull markets, Stock Market Bubble, 1995-2000,

JEL Classification

C34, G11, G14, G23

Disciplines

Economics

Abstract

This article investigates whether large non-bank institutional investors herded during the dot-com bubble of the 1990s. We use the vector Markov-switching model of Hamilton and Lin (1996) to analyse the technology stockholdings of 115 large institutional investors from 1980 to 2012. By imposing different restrictions on the elements of the transition probability matrix, we are able to test for various lead/lag scenarios that might have existed between the technology stockholding of each investor and that of the residual market. We find that only 17.4% of the investors in our sample herded during the dot-com bubble. Thus, during the dot-com bubble, herding among large institutional investors was not an especially widespread phenomenon. Among those investors that herded, 80% herded during the run-up, 10% during the collapse and 10% during both phases of the dot-com bubble. About 23% of all investors in our sample exited from the technology sector before the bubble collapsed. These results seem to support Abreu and Brunnermeier’s (2003) theory of bubbles and crashes.

Comments

This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on June 17, 2016, available online: http://www.tandfonline.com/10.1080/00036846.2016.1184376 .

DOI

10.1080/00036846.2016.1184376

Publisher Citation

Balagyozyan, A., & Cakan, E. (2016). Did large institutional investors flock into the technology herd? An empirical investigation using a vector Markov-switching model. Applied Economics, 1-17.

Available for download on Sunday, December 17, 2017

Included in

Economics Commons

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