Herding Behavior Evidence from Portuguese Mutual Funds

Can Following Be Dangerous? On the Sequential Herding Behavior between Mutual Funds and Hedge Funds

SSRN Electronic Journal ◽

10.2139/ssrn.1786375 ◽

2011 ◽

Author(s):

Pengfei Ye ◽

Yawen Jiao

Keyword(s):

Mutual Funds ◽

Hedge Funds ◽

Herding Behavior

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Relationship between mutual funds and hedge funds performance in different periods

Finance, Markets and Valuation ◽

10.46503/qluv5221 ◽

2018 ◽

Vol 4 (1) ◽

pp. 1-14

Author(s):

G. Lechner ◽

B. Fauster

Keyword(s):

Financial Crisis ◽

Correlation Analysis ◽

Mutual Funds ◽

Hedge Funds ◽

Hedge Fund ◽

Herding Behavior ◽

Changing Environment ◽

Price Informativeness ◽

Developed Markets

The hedge fund literature has already shown that hedge funds and mutual funds follow a different strategy. One result of the literature was that mutual funds herd into or out of stocks following the herd of hedge funds one quarter later. The aim of this paper is to find out whether herding behavior of mutual funds have changed after the financial crisis. Our paper compares mutual funds and equity hedge funds in general (not only large hedge funds). The hypothesis is that mutual funds are not herding to equity hedge funds as strong as before the crisis. We use OLS regressions and correlation analysis to test the aforementioned hypothesis. We found that the monthly returns of hedge funds and mutual funds have synchronized in developed markets after the financial crisis. Therefore, the argument that mutual funds herd hedge funds is at least not as strong as before. The improving effectiveness and price informativeness could be an explanation for this changing environment.

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