Behavioural Types and Characteristics of UK Fund Managers’ Cascading and Herding: New Evidence From the Stock Market

Posted: 15 Jul 2013

See all articles by Ralph Lu

Ralph Lu

Ming Chuan University - Department of Finance

Date Written: February 15, 2013

Abstract

This paper first extends Sias (2004) to examine whether UK fund managers are engaged in herding behaviours in the stock market, their reasons for herding, whether their herding behaviours are different during bullish and bearish periods and whether or not their herding behaviours are informational. Our results demonstrate that UK fund managers’ cascades primarily result from their herding. Because they are more likely to herd in large capitalisation securities, their herding may result from investigative herding, contrary to the finding of Sias (2004). Moreover, our results find that fund managers’ cascades primarily result from their herding, which does not change in bullish and bearish stock markets. We also find that growth-type and international-type funds are more likely to herd with funds similar to their types while value-type funds are more likely to herd with funds different from their types. In addition, we confirm that weak positive correlations exist between the fraction of fund managers buying and subsequent stock returns, consistent with the results of Wermers (1999), Choe et al. (1999) and Sias (2004). According to Hung et al. (2010), their herding behaviours belong to informational herding within the subsequent year. To improve portfolio performance, other investors could follow UK fund managers to purchases stocks overbought by them with at least 15 traders quarterly in the following one year period, especially for growth, specific sector and international funds.

Keywords: investigative herding, informational herding, reputational herding, mutual fund, UK

JEL Classification: G11, G14, G21, C21

Suggested Citation

Lu, Ralph Yang-Cheng, Behavioural Types and Characteristics of UK Fund Managers’ Cascading and Herding: New Evidence From the Stock Market (February 15, 2013). Available at SSRN: https://ssrn.com/abstract=2293680

Ralph Yang-Cheng Lu (Contact Author)

Ming Chuan University - Department of Finance ( email )

Taiwan

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