Herding in the German Mutual Fund Industry

This paper analyses the trading activity of German mutual funds in the 1998–2002 period to investigate whether German mutual fund managers are engaged in herding behaviour. Another objective of the study is to determine the impact of this herd‐like trading on stock prices. Our results provide eviden...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2006-06, Vol.12 (3), p.375-406
Main Authors: Walter, Andreas, Moritz Weber, Friedrich
Format: Article
Language:English
Subjects:
Econometrics
Financial research
G14
G23
German stock market
Herding
Investment advisors
Investment analysis
Investment policy
Investment trusts
Mutual funds
Portfolio management
positive feedback trading
Securities markets
Stock exchange
Stock prices
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Summary:This paper analyses the trading activity of German mutual funds in the 1998–2002 period to investigate whether German mutual fund managers are engaged in herding behaviour. Another objective of the study is to determine the impact of this herd‐like trading on stock prices. Our results provide evidence of herding and positive feedback trading by German mutual fund managers. We show that a significant portion of herding detected in the German market is associated with spurious herding as a consequence of changes in benchmark index composition. Investigating the impact of mutual fund herding on stock prices, we find that herding seems to neither destabilise nor stabilise stock prices.
ISSN:1354-7798
1468-036X
DOI:10.1111/j.1354-7798.2006.00325.x