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Mutual fund herding and return comovement in Chinese equities

Mustafa Onur Caglayan, Yu Hu and Wenjun Xue

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: This paper explores the role mutual fund herding plays on the return comovement in Chinese equities. The results show that mutual fund herding significantly reduces the return comovement among Chinese stocks, providing evidence for the existence of a rational herding behavior by mutual funds. We find that the negative effect of mutual fund herding on return comovement is larger for stocks with low volatility and high mutual fund ownership. We also observe that mutual fund herding has a stronger impact on return comovement after the full-implementation of the Split-Share Structure Reform in China in 2012 which allowed all shares to be traded freely among all market participants.

Keywords: Mutual fund herding; Return comovement; Institutional trading (search for similar items in EconPapers)
JEL-codes: G10 G15 G23 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101599

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001062