Institutional Country Herding
30 Pages Posted: 23 Jan 2017
Date Written: May 1, 2016
Using a noble set of data from 1999 to 2010, I investigate whether or not the US mutual funds following other mutual funds investing stocks into a country and out of another, institutional country herding. My empirical results reveal strong institutional country herding. The cross-sectional correlation between the fraction of mutual funds buying stocks of a country this quarter and buying the same country’s stock in the last quarter averages 26%. Additionally, cross-sectional evidence indicates that past country returns are negatively related to contemporaneous institutional demand, showing mutual funds in my sample are contrarian traders.
Keywords: Institutional Country Herding, Mutual Funds, Momentum trading, Top-down investment approach
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