Is anti-herding always a smart choice? Evidence from mutual funds

John Byong-Tek Lee, Jun Ma, Dimitris Margaritis and Wanyi Yang

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mutual funds with contrarian buy behaviour and contrarian sell behaviour. The contrarian-buy behaviour reflects skill by positively predicting the cross-section of next period's mutual fund returns, while the contrarian-sell behaviour reflects a lack of skill associated with a negative prediction. These findings are robust to various risk-adjusted performance measures. Contrarian-buy funds outperform momentum-buy funds by 3% per year, while contrarian-sell funds underperform momentum-sell peers by about 4%. These findings are robust across different sizes and styles of mutual funds. Further analysis indicates that the asymmetric effect is reversed during recessions and disappears when market sentiment is high. We also study how mutual fund characteristics relate to contrarian buy and sell practices. We find that mutual funds with larger size, higher flow, lower tracking error, and no manager ownership are more likely to buy against the crowd but sell with the crowd.

Keywords: Mutual funds; Herding; Contrarian trading; Buy and sell asymmetry (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105752192300340X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s105752192300340x

DOI: 10.1016/j.irfa.2023.102824

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().