Institutional Trade Persistence and Long-Term Equity Returns
Dasgupta, Prat and Verardo note that single-quarter institutional herding predicts short-term returns positively. Motivated by theory that stresses persistence in decisions over time, they estimate the effect of multiquarter institutional buying and selling on stock returns. With regression and portfolio tests, they find that persistent institutional trading predicts lower long-term returns, so stocks that were persistently sold outperform those persistently bought at long horizons. The pattern is not explained by past returns or other stock characteristics and is concentrated among smaller stocks.
Dasgupta, Prat and Verardo note that single-quarter institutional herding predicts short-term returns positively. Motivated by theory that stresses persistence in decisions over time, they estimate the effect of multiquarter institutional buying and selling on stock returns. With regression and portfolio tests, they find that persistent institutional trading predicts lower long-term returns, so stocks that were persistently sold outperform those persistently bought at long horizons. The pattern is not explained by past returns or other stock characteristics and is concentrated among smaller stocks.
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Dasgupta, A., Prat, A., & Verardo, M. (2011). Institutional Trade Persistence and Long-Term Equity Returns. Journal of Finance, 66(2), 635-653