Author: Russ Wermers Publisher: ISBN: Category : Languages : en Pages : 49
Book Description
We analyze the trading activity of the mutual fund industry between 1975 and 1994 to determine whether funds quot;herdquot; when they trade stocks and to investigate the impact of herding on stock prices. Although we find little herding by mutual funds in the average stock, we find much higher levels in trades of small stocks and in trading by growth-oriented funds. Stocks that herds buy outperform stocks that they sell by four percent during the following six months; this return difference is much more pronounced among small stocks. Our results are consistent with mutual fund herding speeding the price-adjustment process.
Author: Yawen Jiao Publisher: ISBN: Category : Languages : en Pages : 60
Book Description
We examine whether mutual funds and hedge funds herd after each other and the associated impacts on stock prices. We find strong evidence that mutual funds herd into or out of stocks following the herd of hedge funds: mutual funds' herding measure is positively related to last quarter's hedge fund herding. In contrast, hedge funds do not follow mutual funds. Mutual funds' following of hedge funds leads to a sharp price reversal in the next quarter, whereas hedge fund herding itself does not destabilize prices. Further, a mutual fund's following intensity increases with its past performance. The top 30 percent of mutual funds most active in following hedge funds do so persistently and drastically increase their herding subsequent to intense herding by hedge funds. They are also the group driving the above price reversals. Overall, our evidence is consistent with the reputational incentives of mutual fund herding and the associated price destabilization effects.
Author: Andrew Wallace Koch Publisher: ISBN: Category : Languages : en Pages : 228
Book Description
This study examines several issues related to mutual fund herd behavior. First, a unifying and consistent framework for measuring herd behavior is developed. This framework generates portfolio-level measures for each fund manager over each quarter, and relates herd behavior to other aspects of portfolio dynamics. Simulations indicate significant and persistent non-random herd behavior. Second, mechanisms that potentially underly herd behavior are tested. Empirical results indicate that herding funds tend to i) change their holdings towards levels similar to peers, ii) have less experienced managers, and iii) underperform their peers. These results are consistent with a career concerns theory of herding. Third, the impact of mutual fund herding on stock liquidity is examined. Empirical results indicate that herd behavior can lead to correlation in stock-level liquidity.
Author: Nerissa C. Brown Publisher: ISBN: Category : Languages : en Pages :
Book Description
This paper documents the tendency of mutual fund managers to follow analyst recommendation revisions when they trade stocks, and the impact of analyst revisioninduced mutual fund "herds" on stock prices. We find that mutual fund herds follow consensus revisions in analyst recommendations, controlling for common investment signals that affect both analyst revisions and mutual fund trading. Consensus upgrades result in herds of funds buying a stock, while consensus downgrades result in even bigger herds of funds selling. Our most important finding is that mutual fund herding impacts stock prices to a much larger degree during our sample period (1994 to 2003) than during prior-studied periods. Further, we find the first evidence that mutual funds appear to overreact when they herd in their trades - stocks heavily bought by herds tend to underperform their size, book-tomarket, and momentum cohorts during the following year, while stocks heavily sold outperform. These reversal patterns are even stronger when herds of mutual funds (especially funds with poor performance records) follow analyst recommendation revisions. An investment strategy that accounts for the direction of both analyst revisions and mutual fund herding generates a return (adjusted for size, book-to-market, and momentum) exceeding six percent during the following year. Our results remain robust when we condition fund herding on analyst earnings forecast revisions instead of recommendation revisions. Overall, our study finds that the interaction between sell-side analysts and mutual fund managers plays an important role in setting prices in equity markets.
Author: Nerissa C. Brown Publisher: ISBN: Category : Languages : en Pages : 37
Book Description
This paper documents that mutual funds ldquo;herdrdquo; (trade together) into stocks with consensus sell-side analyst upgrades, and herd out of stocks with consensus downgrades. This influence of analyst revisions on fund herding is stronger for downgrades, and among managers with greater career concerns. These findings indicate that career-concerned managers are incentivized to follow analyst information, and have a greater tendency to herd on negative stock information, given the greater reputational and litigation risk of holding losing stocks. Further, during the more recent period (when aggregate mutual fund equity ownership is significantly higher), stocks traded by career-concerned herds of fund managers in response to analyst revisions experience a significant same-quarter price impact, followed by a sharp subsequent price reversal. Our evidence suggests that analyst recommendation revisions induce herding by career-concerned fund managers, and that this type of trading has become price-destabilizing with the increasing level of mutual fund ownership of stocks.
Author: Kalok Chan Publisher: ISBN: Category : Languages : en Pages : 41
Book Description
We examine the relation between herding of mutual funds and dispersion of analysts' earnings forecasts to ascertain whether it is the lack of information or the arrival of correlated information that induces herding. Results show that the level of herding in individual stocks is positively related to the dispersion measure. Herding is also related to other information quality variables such as stock return volatility and analyst coverage. Our results suggest that fund managers herd in response to lack of reliable information, rather than to exploit correlated fundamental information. Although market capitalization and trading volume are also related to herding, they seem to capture the firm characteristic to which mutual funds are attracted to (or repelled from). Our evidence indicates that buy- and sell-herding respond asymmetrically to information uncertainty. Sell-herding is more prevalent and is positively related to forecast dispersion. Buy-herding, on the other hand, is not related to dispersion. The asymmetric relationship between herding and information uncertainty is consistent with the quot;prospect theoryquot; and quot;sharing-of-the-blamequot; under bad news.
Author: G. Gregoriou Publisher: Springer ISBN: 0230626505 Category : Business & Economics Languages : en Pages : 446
Book Description
This book addresses the importance of diversification for reducing volatility of investment portfolios. It shows how to improve investment efficiency, and explains how international diversification reduces overall risk while enhancing performance. This book is a crucial tool for any investor looking to improve the profit gain from their investment.
Author: Andreas Oehler Publisher: ISBN: Category : Languages : en Pages : 26
Book Description
Herding behavior, i.e. the adjustment of a decision maker's behavior, opinion, or expectations due to real or illusionary (social) pressures, can be explained by numerous behavioral finance models, such as the cascade model or contagion. However, unambiguous empirical results are rare, mainly due to differing methodologies used in previous studies. We analyze the buying and selling activities of the managers of German mutual funds that primarily invest in equities over the period from 2000 to 2005. Our dataset covers about 70 percent of the total investments of all German equity mutual funds. Our results reveal that there is considerable herding behavior when mutual fund managers face market-wide cash inflows or cash outflows. In addition, mutual funds that only invest in German equities display stock-picking herding behavior when selecting which stocks to invest in.
Author: Stefan Frey Publisher: ISBN: Category : Languages : en Pages : 36
Book Description
This paper proposes a methodological improvement to empirical studies of herd behavior based on investor transactions. By developing a simple model of trading behavior, we show that the traditionally used herding measure produces biased results. As this bias depends on characteristics of the data, it also affects the robustness of previous findings. We derive a new measure that is unbiased and shows superior statistical properties for data sets commonly used. In an analysis of the German mutual fund market, our measure provides new insights into fund manager herding that would have been undetected under the traditional statistic.
Author: Russ Wermers
Author: Yawen Jiao
Author: Andrew Wallace Koch
Author: Nerissa C. Brown
Author: Nerissa C. Brown
Author: Kalok Chan
Author: G. Gregoriou
Author: Sushil Bikhchandani
Author: Andreas Oehler
Author: Stefan Frey