Download This PaperExploring Style Herding by Mutual Funds
Journal of International Financial Markets, Institutions & Money
38 Pages Posted: 15 Jun 2017 Last revised: 21 Mar 2023
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Exploring Style Herding by Mutual Funds
Date Written: April 21, 2023
Abstract
We study intentional herding in investment styles by mutual funds, and its consequences. We find that style herding is significant and persistent. Herding tends to increase after periods of high market volatility and decrease with sentiment, consistent with the intentional character of herding. Furthermore, we find that herding is related to changes in market dynamics. Finally, we find that herding in certain styles tends to temporarily increase mutual funds' performance, whereas it reduces flows. Overall, the results illustrate that intentional herding in styles is prevalent and has important consequences for market dynamics, fund managers, and investors.
Keywords: herding, mutual funds, style investing, asset pricing
JEL Classification: C32, G12, G23
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