Exploring Style Herding by Mutual Funds

35 Pages Posted: 15 Jun 2017 Last revised: 18 Nov 2018

See all articles by Caterina Santi

Caterina Santi

Cork University Business School

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute

Date Written: November 17, 2018


This paper analyses mutual fund herding in the value-growth and size dimensions. We document that mutual fund herding in styles is significant and persistent. Furthermore, the results show that mutual fund herding tends to increase after periods of high cumulative returns and market volatility. Positive sentiment is followed by an increase in mutual fund herding towards small stocks. Instead, mutual fund herding in large value stocks significantly decreases after better-than-average economic conditions. The level of mutual fund herding is lower during crises. Mutual fund herding in styles causes overpricing in the market portfolio, and SMB and HML factors; this effect is stronger when the average fund flows are higher. Furthermore, mutual fund herding in styles in some cases impacts the autocorrelation structure of factor returns. Finally, we find that mutual fund herding in styles also affects the average fund flows and performance of the industry.

Keywords: herding, mutual funds, style investing, asset pricing

JEL Classification: C32, G12, G23

Suggested Citation

Santi, Caterina and Zwinkels, Remco C.J., Exploring Style Herding by Mutual Funds (November 17, 2018). Available at SSRN: https://ssrn.com/abstract=2986059 or http://dx.doi.org/10.2139/ssrn.2986059

Caterina Santi (Contact Author)

Cork University Business School ( email )

College Rd, University College Cork

HOME PAGE: http://www.caterinasanti.com

Remco C.J. Zwinkels

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

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