Does herding behavior reveal skill? An analysis of mutual fund performance

Jiang, Hao and Verardo, Michela ORCID: 0009-0002-4241-6584 (2018) Does herding behavior reveal skill? An analysis of mutual fund performance. Journal of Finance, 73 (5). 2229 - 2269. ISSN 0022-1082

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Abstract

We uncover a negative relation between herding behavior and skill in the mutual fund industry. Our new, dynamic measure of fund-level herding captures the tendency of fund managers to follow the trades of the institutional crowd. We find that herding funds underperform their antiherding peers by over 2% per year. Differences in skill drive this performance gap: antiherding funds make superior investment decisions even on stocks not heavily traded by institutions, and can anticipate the trades of the crowd; furthermore, the herding-antiherding performance gap is persistent, wider when skill is more valuable, and larger among managers with stronger career concerns.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/15406261
Additional Information:	© 2018 American Finance Association
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G2 - Financial Institutions and Services > G20 - General G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Date Deposited:	02 Jan 2018 15:10
Last Modified:	21 Oct 2025 23:51
URI:	http://eprints.lse.ac.uk/id/eprint/86372

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