Using the KRX/IFB intraday database which includes detailed information pertaining to the identity of the investor for each and every transaction, this paper investigates the herding behavior of professional investors and its impact on stock prices
with the more accurate estimate of the LSV herding measure. We find an asymmetric impact of buy herding and sell herding; while there is no return reversal following sell herding, buy herding is followed by return reversal. The fact that no return reversal occurs after sell herding indicates that sell herding, instead of destabilizing the market, helps to drive prices toward true values. On the other hand, return reversal after intense buy herding suggests that buy herding destabilizes the market. This evidence suggests that buy herding among professional investors is not based on information. We also find evidence that return reversal after buy herding is stronger especially for stocks with lower analyst coverage. Additionally, we find that while return reversal occurs almost right away when foreigners herd to buy, it takes some time for returns to reverse their
courses when buy herding is initiated by domestic institutional investors. In the latter case, prices are predictable until the return reversal occurs.
Key words: long-term herding effect; short-term herding effect; buy herding; sell herding; information asymmetry
