Does reputation contribute to institutional herding?

We examine the reputational herding hypothesis and provide evidence that institutional investors' career concerns contribute to herding behavior. Our analysis is based on the intuition that stronger (weaker) career concerns lead to a higher (lower) propensity to herd in down (up) markets. We find that institutional herding is, on average, 40% greater in down markets than in up markets. Moreover, we find that mutual funds and independent advisors follow ‘same type’ institutions 43% more in down markets than in to up markets. Our evidence suggests that institutional herding is driven, at least in part, by institutional managers' reputational concerns.