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What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?

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  • G. Rubbaniy

Abstract

This paper explores the herding dynamics in US mutual funds’ trading and documents the evidence of increased herding over time. I observe (slightly) higher levels of overall herding compared to main stream herding literature with asymmetry on the buy and sell side; the overall herding level is weakly affected by the scale economies and significantly influenced by a fund’s style. Increased participation of mutual funds to the financial markets, proxied by number of quarterly traded securities, appears to be positively correlated with mutual funds’ herding. Both stocks’ beta and market volatility are found to be crucial determinants of herding. A higher demand for the smaller-sized stocks confirms the presence of small-firm-effect anomaly. In addition, I find US mutual funds’ herding more in bad market scenarios compared with good market environment.

Suggested Citation

  • G. Rubbaniy, 2016. "What Drives Mutual Funds Long-term Herding: Bear or Bull Markets?," Accounting and Finance Research, Sciedu Press, vol. 5(4), pages 214-214, November.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:4:p:214
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    References listed on IDEAS

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    1. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1703, August.
    2. Hwang, Soosung & Salmon, Mark, 2004. "Market stress and herding," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 585-616, September.
    3. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
    4. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    5. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, April.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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