Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective

Abstract

This paper proposes an informational network measure and an extended analysis method for network data envelopment, uncovering a negative relationship between institutional herding and investment efficiency. We also capture the investment efficiency loss of the herding institutions. The results show that the eccentric institutions outperform their herding peers by over 1.4% annually. Our evidence indicates that herding actions weaken the positive role of active management, leading to inefficiency. Further analyses show that a stressed market and herding strategy implemented by poorly performing institutions with inadequate past performance can aggravate the negative effect of institutional herding. Moreover, we support the positive effect of institutional herding on an increasing rise and mitigating effect concerning the intensification of persistent crashes.