Leading the herd: evidence from mutual funds’ buy and sell decisions

Marius Popescu and Zhaojin Xu ()
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Marius Popescu: Northeastern University
Zhaojin Xu: University of Massachusetts Dartmouth

Review of Quantitative Finance and Accounting, 2018, vol. 50, issue 4, No 6, 1146 pages

Abstract: Abstract This article investigates whether a mutual fund’s performance is related to its herding behavior. Using the methodology of Sias (Rev Finance Stud 17:165–206, 2004), we develop a measure to capture the magnitude that a fund’s buy (sell) decisions are leading other funds’ buys (sells), and find that a fund’s performance is positively (negatively) related to its “buy leading” (“sell leading”). We interpret these findings as evidence that “buy leaders” (“sell leaders”)’ performance benefits (suffers) from the positive (negative) price effect associated with buy (sell) herds. Additionally, we find a positive relationship between fund performance and valuation-motivated “buy leading”, while we find weak evidence on the relationship between performance and valuation-motivated “sell leading”. We interpret these results as evidence that leading funds’ outperformance is due, in part, to their ability to value stocks.

Keywords: Herding; Mutual funds; Performance; Valuation ability (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-017-0656-7

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