Herd Behavior and Mutual Fund Performance
Management Science · 2017 · Volume 63 · Issue 11
Abstract
I develop fund-level measures of the similarity in trading of mutual fund managers, resulting in the identification of leaders, contemporaneously herding managers, and followers. I find evidence of a persistent group of funds whose trades lead the aggregate trades of the mutual fund industry; these leader funds exhibit strong subsequent performance, consistent with informed trading. By contrast, there is no evidence that managers that trade together, either contemporaneously or with a lag, outperform. These findings suggest that managers of leader funds receive in advance private signals regarding the information upon which other funds focus. This paper was accepted by Lauren Cohen, finance .
Keywords
mutual fund herding, informed trading, career concerns
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