This paper sheds new light on herding of institutional investors by using a unique
database that identifies every transaction made by financial institutions in the
German stock market. First, the analysis reveals that herding behavior of insti-
tutions occurs daily. Second, replication of the analysis with low-frequency and
anonymous transaction data indicates that previous studies overestimate herding.
Third, our results suggest that herding by large financial institutions mainly re-
sults from shared preference and investment styles. Fourth, a panel analysis shows
that herding on the sell side in stocks is positively related to past returns and past
volatility, whereas herding on the buy side is negatively related to these variables.
Hence, large financial institutions do not demonstrate positive feedback strategies.
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