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Industry herding by hedge funds

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  • Mustafa Onur Caglayan
  • Umut Celiker
  • Gokhan Sonaer

Abstract

This paper investigates hedge fund herding at the industry level and its impact on industry returns. Although the level of industry herding on average is substantially weaker for hedge funds compared to non-hedge fund institutions, we find that industries that experience heavy herding by hedge funds experience return reversals in the long-run. We provide evidence that non-hedge funds especially follow hedge funds’ sell herding industries in following quarters, and the long-run return reversals observed in these industries are due to non-hedge funds’ failure to timely react to good news coming from these heavy hedge fund sell-herding industries in subsequent quarters.

Suggested Citation

  • Mustafa Onur Caglayan & Umut Celiker & Gokhan Sonaer, 2021. "Industry herding by hedge funds," The European Journal of Finance, Taylor & Francis Journals, vol. 27(18), pages 1887-1907, December.
    • Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1887-1907
    DOI: 10.1080/1351847X.2021.1918206
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    Cited by:

    1. Ming‐Hung Wu & Wan‐Ting Hu & Pei‐Shih Weng, 2023. "Herd behaviors in index futures trading: Driving factors and impact on market volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(10), pages 1373-1392, October.
    2. Ali, Sara & Badshah, Ihsan & Demirer, Riza, 2023. "Anti-herding by hedge funds and its implications for expected returns," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 31-48.

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