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Herding by mutual funds: impact on performance and investors’ response

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  • Debarati Bhattacharya
  • Gokhan Sonaer

Abstract

In this paper we investigate whether herding by actively managed equity funds affects their performances and flows over the 1980–2013 period. We show that during the herding quarter, on average, funds that trade with the herd benefit from this behavior. Although this does not directly translate into a positive association between the extent to which funds herd and their subsequent performance, we find that the funds that follow the herd earn negative abnormal returns whereas the ones that lead earn no abnormal returns. Our results also indicate that investors react adversely to follower funds while they are neutral towards the leader funds.

Suggested Citation

  • Debarati Bhattacharya & Gokhan Sonaer, 2018. "Herding by mutual funds: impact on performance and investors’ response," The European Journal of Finance, Taylor & Francis Journals, vol. 24(4), pages 283-299, March.
    • Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:283-299
    DOI: 10.1080/1351847X.2016.1224194
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    Cited by:

    1. Artiga Gonzalez, Tanja & Dyakov, Teodor & Inhoffen, Justus & Wipplinger, Evert, 2024. "Crowding of international mutual funds," Journal of Banking & Finance, Elsevier, vol. 164(C).
    2. Gimeno, Ruth & Andreu, Laura & Sarto, José Luis, 2022. "Fund trading divergence and performance contribution," International Review of Financial Analysis, Elsevier, vol. 83(C).

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