Does herding behavior reveal skill? An analysis of mutual fund performance

Hao Jiang and Michela Verardo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We uncover a negative relation between herding behavior and skill in the mutual fund industry. Our new, dynamic measure of fund-level herding captures the tendency of fund managers to follow the trades of the institutional crowd. We find that herding funds underperform their antiherding peers by over 2% per year. Differences in skill drive this performance gap: antiherding funds make superior investment decisions even on stocks not heavily traded by institutions, and can anticipate the trades of the crowd; furthermore, the herding-antiherding performance gap is persistent, wider when skill is more valuable, and larger among managers with stronger career concerns.

Keywords: herding; mutual funds; performance; ability; imitation; alpha (search for similar items in EconPapers)
JEL-codes: G11 G20 G23 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Published in Journal of Finance, 1, October, 2018, 73(5), pp. 2229 - 2269. ISSN: 0022-1082

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86372

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