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Measuring mutual fund herding – A structural approach

Author

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  • Frey, Stefan
  • Herbst, Patrick
  • Walter, Andreas
Abstract
This paper proposes a methodological improvement to empirical studies of herd behavior based on investor transactions. By developing a simple model of trading behavior, we show that the traditionally used herding measure produces biased results. As this bias depends on characteristics of the data, it also affects the robustness of previous findings. We derive a new measure that is unbiased and shows superior statistical properties for data sets commonly used. In an analysis of the German mutual fund market, our measure provides new insights into fund manager herding that would have been undetected under the traditional statistic.

Suggested Citation

  • Frey, Stefan & Herbst, Patrick & Walter, Andreas, 2014. "Measuring mutual fund herding – A structural approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 219-239.
  • Handle: RePEc:eee:intfin:v:32:y:2014:i:c:p:219-239
    DOI: 10.1016/j.intfin.2014.05.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Herding; LSV measure; Mutual funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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