Herd Behaviour & Investor Sentiment: Evidence from UK Mutual Funds

25 Pages Posted: 15 Aug 2018

See all articles by Yawen Hudson

Yawen Hudson

Loughborough University; University of Hull

Meilan Yan

Hull University Business School (HUBS)

Dalu Zhang

University of Salford - Salford Business School

Date Written: April 2018

Abstract

The aims of this paper are to detect evidence of institutional investor herding behaviour and examine the role that investor sentiment plays in the institutional investor herd behaviour. We use bivariate GARCH method estimated time varying beta to estimate herding variables of UK open-ended and closed-end funds. A state space model used in the process the study finds evidence of fund manager herding behaviour, which suggests they are likely to herd on market portfolio. UK market-wide sentiment index and UK institutional sentiment index are used for investigating the effects of investor sentiment on institutional herding behaviour. We found that market-wide sentiment may be a source of both open-ended and closed-end fund managers’ herding behaviour. Institutional sentiment may be a source of open-ended fund managers’ herding. A bi-directional causality relation between institutional sentiment and closed-end fund herding is also found from investigations.

Keywords: institutional investors, herding, mutual fund, investor sentiment

JEL Classification: G02, G11, G12, G23

Suggested Citation

Hudson, Yawen and Yan, Meilan and Zhang, Dalu, Herd Behaviour & Investor Sentiment: Evidence from UK Mutual Funds (April 2018). Available at SSRN: https://ssrn.com/abstract=3222312 or http://dx.doi.org/10.2139/ssrn.3222312

Yawen Hudson (Contact Author)

Loughborough University ( email )

Loughborough
Great Britain

University of Hull ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Meilan Yan

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Dalu Zhang

University of Salford - Salford Business School ( email )

Salford, Greater Manchester M5 4WT
United Kingdom

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