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Herding in the German Mutual Fund Industry

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  • Andreas Walter
  • Friedrich Moritz Weber

Abstract

This paper analyses the trading activity of German mutual funds in the 1998–2002 period to investigate whether German mutual fund managers are engaged in herding behaviour. Another objective of the study is to determine the impact of this herd‐like trading on stock prices. Our results provide evidence of herding and positive feedback trading by German mutual fund managers. We show that a significant portion of herding detected in the German market is associated with spurious herding as a consequence of changes in benchmark index composition. Investigating the impact of mutual fund herding on stock prices, we find that herding seems to neither destabilise nor stabilise stock prices.

Suggested Citation

  • Andreas Walter & Friedrich Moritz Weber, 2006. "Herding in the German Mutual Fund Industry," European Financial Management, European Financial Management Association, vol. 12(3), pages 375-406, June.
  • Handle: RePEc:bla:eufman:v:12:y:2006:i:3:p:375-406
    DOI: 10.1111/j.1354-7798.2006.00325.x
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    File URL: https://doi.org/10.1111/j.1354-7798.2006.00325.x
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