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Mutual Fund Herding and the Impact on Stock Prices

Posted: 24 Oct 1998  

Russ Wermers

University of Maryland - Robert H. Smith School of Business

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Abstract

We analyze the trading activity of the mutual fund industry between 1975 and 1994 to determine whether funds "herd" when they trade stocks and to investigate the impact of herding on stock prices. Although we find little herding by mutual funds in the average stock, we find much higher levels in trades of small stocks and in trading by growth-oriented funds. Stocks that herds buy outperform stocks that they sell by four percent during the following six months; this return difference is much more pronounced among small stocks. Our results are consistent with mutual fund herding speeding the price-adjustment process.

JEL Classification: G11,G12,G23

Suggested Citation

Wermers, Russ, Mutual Fund Herding and the Impact on Stock Prices. Journal of Finance. Available at SSRN: https://ssrn.com/abstract=136738

Russell R. Wermers (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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