Herd Behavior and Mutual Fund Performance
Management Science, Forthcoming
47 Pages Posted: 22 Feb 2014 Last revised: 27 Sep 2016
Date Written: November 6, 2015
I develop fund-level measures of the similarity in trading of mutual fund managers, resulting in the identification of leaders, contemporaneously herding managers, and followers. I find evidence of a persistent group of funds whose trades lead the aggregate trades of the mutual fund industry; these leader funds exhibit strong subsequent performance, consistent with informed trading. In contrast, there is no evidence that managers that trade together, either contemporaneously or with a lag, outperform. These findings suggest that managers of leader funds receive in advance private signals regarding the information upon which other funds focus.
Keywords: Mutual fund herding, Informed trading, Career concerns
JEL Classification: G23
Suggested Citation: Suggested Citation