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Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior
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MARK GRINBLATT
University of California, Los Angeles - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)
SHERIDAN TITMAN
University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)
RUSS WERMERS
University of Maryland - Robert H. Smith School of Business
September 1994
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Abstract:
We examine the investment strategies of 155 mutual funds over the 1975-84 period to determine the extent to which the funds purchased stocks based on their past returns, and to determine the relation of this behavior to their observed portfolio performance. We find that about 77% of these mutual funds were "momentum investors", buying stocks that were past winners; however, they did not systematically sell past losers. On average, these "trend-followers" realized significantly better performance than the remaining funds. We also find that the mutual funds exhibited herding behavior, and that the tendency of a fund to herd in its trades was strongly correlated with its tendency to buy past winners as well as with its portfolio performance. Consistent with the evidence on trend-following, herding into past winners was stronger than herding into past losers.
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JEL Classifications: G10
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Working Paper Series
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Contact Information for
MARK
GRINBLATT
Email address for MARK
GRINBLATT
University of California, Los Angeles - Finance Area
Los Angeles
, CA
90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)
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(No e-mail address available for MARK
GRINBLATT
Yale University - International Center for Finance
Box 208200
New Haven
, CT
06520-8200
United States
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(No e-mail address available for MARK
GRINBLATT
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge
, MA
02138
United States
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Contact Information for
SHERIDAN
TITMAN
Email address for SHERIDAN
TITMAN
University of Texas at Austin - Department of Finance
Red McCombs School of Business
Austin
, TX
78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)
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(No e-mail address available for SHERIDAN
TITMAN
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge
, MA
02138
United States
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Contact Information for
RUSS
WERMERS
Email address for RUSS
WERMERS
University of Maryland - Robert H. Smith School of Business
Department of Finance
College Park
, MD
20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)
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Email Abstract or URL
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