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Do fund managers herd to counter investor sentiment?

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  • Liao, Tsai-Ling
  • Huang, Chih-Jen
  • Wu, Chieh-Yuan
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    Abstract

    Extensive literature conjectures that investor sentiment may be one of the important factors in explaining fund manager herding. To address this issue, this study investigates the role of investor sentiment in fund manager herding. The study employs the trinomial-distribution approach to measure manager herding, and uses the principal component analysis as the means of extracting the composite sentiment measure. The results indicate that investor sentiment plays a significant role in explaining subsequent mutual fund herding, especially on the sell-side. Specifically, the evidence is consistent with the funds sharing an aversion to stocks that have previously exhibited higher optimistic sentiment, supporting the sentiment countering hypothesis. The finding also reveals the existence of informational cascades in the case that fund managers herd as a result of analyzing the same sentiment-related indicators.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 64 (2011)
    Issue (Month): 2 (February)
    Pages: 207-212

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    Handle: RePEc:eee:jbrese:v:64:y:2011:i:2:p:207-212

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    Web page: http://www.elsevier.com/locate/jbusres

    Related research

    Keywords: Herding Investor sentiment Fund managers;

    References

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    Cited by:
    1. Yang, Chunpeng & Zhang, Rengui, 2013. "Dynamic asset pricing model with heterogeneous sentiments," Economic Modelling, Elsevier, vol. 33(C), pages 248-253.
    2. Yang, Chunpeng & Zhang, Rengui, 2014. "Dynamic sentiment asset pricing model," Economic Modelling, Elsevier, vol. 37(C), pages 362-367.

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