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The dynamic and asymmetric herding behavior of US equity fund managers in the stock market

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  • Fang, Hao
  • Shen, Chung-Hua
  • Lee, Yen-Hsien

Abstract

This paper uses monthly data in a Markov-switching cross-sectional absolute deviation (CSAD) model to reveal the existence of dynamic herding behavior by US equity fund managers in the stock market. We observe positive herding effects in different types of funds during recessionary periods, whereas we find evidence of negative herding behavior in most types of funds during expansionary periods. Our results for asymmetric herding indicate that US fund managers exhibit stronger positive herding behavior when the market is decreasing, when the fund size is smaller and when the fund's period of establishment is shorter during a recessionary period. Conversely, a negative herding effect is stronger when the market is rising, when the fund is larger, and when the fund's period of establishment is longer during an expansionary period. The herding behavior of US fund managers is primarily informational during an expansionary period, but significant information-value herding only exists in the following six months.

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  • Fang, Hao & Shen, Chung-Hua & Lee, Yen-Hsien, 2017. "The dynamic and asymmetric herding behavior of US equity fund managers in the stock market," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 353-369.
    • Handle: RePEc:eee:reveco:v:49:y:2017:i:c:p:353-369
    DOI: 10.1016/j.iref.2016.12.012
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    4. Igor Kravchuk, 2019. "Management of Investment Funds Financial Fragility," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 15(4), pages 17-32.
    5. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    6. Liang Wang & Yuanfei Wang & Bixiao Li, 2023. "The influence of the social networks of fund managers on the herding behavior of SIFs in China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    7. Kim, Daehwan & Iwasawa, Seiichiro, 2017. "Hot money and cross-section of stock returns during the global financial crisis," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 8-22.
    8. Naegels, Vanessa & D’Espallier, Bert & Mori, Neema, 2020. "Perceived problems with collateral: The value of informal networking," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 32-45.
    9. Yarovaya, Larisa & Matkovskyy, Roman & Jalan, Akanksha, 2021. "The effects of a “black swan” event (COVID-19) on herding behavior in cryptocurrency markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    10. Qureshi, Fiza & Kutan, Ali M. & Ghafoor, Abdul & Hussain Khan, Habib & Qureshi, Zeeshan, 2019. "Dynamics of mutual funds and stock markets in Asian developing economies," Journal of Asian Economics, Elsevier, vol. 65(C).
    11. Yarovaya, Larisa & Mirza, Nawazish & Abaidi, Jamila & Hasnaoui, Amir, 2021. "Human Capital efficiency and equity funds’ performance during the COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 584-591.
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    13. Paramita Mukherjee & Sweta Tiwari, 2022. "Trading Behaviour of Foreign Institutional Investors: Evidence from Indian Stock Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(4), pages 605-629, December.

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