Measuring mutual fund herding – A structural approach

Stefan Frey, Patrick Herbst and Andreas Walter

Journal of International Financial Markets, Institutions and Money, 2014, vol. 32, issue C, 219-239

Abstract: This paper proposes a methodological improvement to empirical studies of herd behavior based on investor transactions. By developing a simple model of trading behavior, we show that the traditionally used herding measure produces biased results. As this bias depends on characteristics of the data, it also affects the robustness of previous findings. We derive a new measure that is unbiased and shows superior statistical properties for data sets commonly used. In an analysis of the German mutual fund market, our measure provides new insights into fund manager herding that would have been undetected under the traditional statistic.

Keywords: Herding; LSV measure; Mutual funds (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:32:y:2014:i:c:p:219-239

DOI: 10.1016/j.intfin.2014.05.006

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