Empirical Study: Do Fund Managers Herd to Counter Investor Sentiment?

By T. Liao, Chih-Jen Huang, Chieh-Yuan Wu. 2012

134 citations recorded by the source corpus.

Behavior among investors often influences one another. Investors may forego their own rational analysis but instead adopt behavior that is similar to the group. Recently, several studies note that this herding phenomenon (simultaneously trade the same stocks in the same direction) even exists in the behavior of institutional investors (Choe, Kho, and Stulz, 1999; Grinblatt, Titman, and Wermers, 1995; Kyrolainen and Perttunen, 2003; Lakonishok, Shleifer, and Vishny, 1992; Walter and Weber, 2006; Wermers, 1999; Wylie, 2005). There are three theoretical foundations for explaining institutional investor herding. First, in order to maintain or build a reputation when markets are imperfectly informed, managers may ignore their private information and hide in the herd (Brandenburger and Polak, 1996; Prendergast, 1993; Scharfstein and Stein, 1990; Trueman, 1994; Zwiebel, 1995). Second, managers may infer private information from the prior actions of agents (peer-group effects), and optimally decide to act alike (Bala and Goyal, 1998; Fung and Hsieh, 1999; Pound and Shiller, 1989). Third, institutional investors may receive the correlative private information from analyzing the same indicators (Banerjee, 1992; Bikhchandani, Hirshleifer, and Welch, 1992; Block, French, and Maberly, 2000; Froot, Scharfstein, and Stein, 1992; Hirshleifer, Subrahmanyam, and Titman, 1994) or favoring securities with specific characteristics (Del Guercio, 1996; Falkenstein, 1996; Gompers and Metrick, 2001; Payne, Prather, and Bertin, 1999).

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2f4657c91d4e46c321b63eb945123896cf3ae7f1

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Citations in the corpus

• Do Investors Herd in Global Stock Markets? (2013, methodology): “Inspired by the asymmetric feature of asset returns (Longin and Solnik [2001]), I follow Chang et al.”
• Investor mood, herding and the Ramadan effect (2016, background): “1 Loewenstein et al. (2001); Lucey & Dowling (2005); Nofsinger (2005), Shu (2010), Summers & Duxbury (2012), Abu Bakar et al.”