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

Jiang, Hao and Verardo, Michela (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:	18 Apr 2024 06:27
URI:	http://eprints.lse.ac.uk/id/eprint/86372

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