The Term Structure of Mutual Fund Herding

35 Pages Posted: 17 Dec 2019

See all articles by Xin Liu

Xin Liu

Hanqing Advanced Institute of Economics and Finance, Renmin University of China

Weinan Zheng

The University of Hong Kong Faculty of Business and Economics

Date Written: December 1, 2019

Abstract

This paper investigates herding behaviors in U.S treasury markets. We document novel evidence that mutual funds exhibit strong herding behaviors on trading long-term treasuries. This “term-structure” herding is only pronounced for buy herding, not sell herding. The relationship between herding and time-to-maturity is stronger for funds with high fund flow volatility. Such behaviors also exist for Treasury Inflation Protected Securities (TIPS) and for treasuries with both high and low coupon rates, suggesting that herding is not driven by correlated inflation expectations. Similar results are obtained for investment-grade corporate bonds as well. Overall, our results suggest that mutual funds’ short investment horizons contribute to the term-structure herding behaviors in the bond markets.

Keywords: Herding, Treasuries, Time-to-maturity, Mutual funds, Short-termism

JEL Classification: G11, G14, G23

Suggested Citation

Liu, Xin and Zheng, Weinan, The Term Structure of Mutual Fund Herding (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3496224 or http://dx.doi.org/10.2139/ssrn.3496224

Xin Liu (Contact Author)

Hanqing Advanced Institute of Economics and Finance, Renmin University of China ( email )

Room 307A
Mingde Main Building, Renmin University of China
Beijing, Beijing 100872
China

Weinan Zheng

The University of Hong Kong Faculty of Business and Economics ( email )

Hong Kong
(+852) 5547-5290 (Phone)

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