Mutual Fund Herding and Dispersion of Analysts' Earnings Forecasts

41 Pages Posted: 2 Mar 2005

See all articles by Kalok Chan

Kalok Chan

CUHK Business School

Chuan-Yang Hwang

Nanyang Technological University (NTU)

G. Mujtaba Mian

Zayed University

Date Written: February 23, 2005


We examine the relation between herding of mutual funds and dispersion of analysts' earnings forecasts to ascertain whether it is the lack of information or the arrival of correlated information that induces herding. Results show that the level of herding in individual stocks is positively related to the dispersion measure. Herding is also related to other information quality variables such as stock return volatility and analyst coverage. Our results suggest that fund managers herd in response to lack of reliable information, rather than to exploit correlated fundamental information. Although market capitalization and trading volume are also related to herding, they seem to capture the firm characteristic to which mutual funds are attracted to (or repelled from). Our evidence indicates that buy- and sell-herding respond asymmetrically to information uncertainty. Sell-herding is more prevalent and is positively related to forecast dispersion. Buy-herding, on the other hand, is not related to dispersion. The asymmetric relationship between herding and information uncertainty is consistent with the "prospect theory" and "sharing-of-the-blame" under bad news.

Keywords: herding, forecast dispersion, mutual funds, analysts

Suggested Citation

Chan, Kalok and Hwang, Chuan-Yang and Mian, G. Mujtaba, Mutual Fund Herding and Dispersion of Analysts' Earnings Forecasts (February 23, 2005). Available at SSRN: or

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Chuan-Yang Hwang

Nanyang Technological University (NTU) ( email )

Singapore, 639798
65-67905003 (Phone)
65-6791-3697 (Fax)

G. Mujtaba Mian (Contact Author)

Zayed University

P.O. Box 19282
College of Business
Dubai, Dubai 19282
United Arab Emirates
+971568120604 (Phone)

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