Herding in the German Mutual Fund Industry

Walter, Andreas; Weber, Friedrich Moritz

doi:10.1111/j.1354-7798.2006.00325.x

Cited by 160 publications

(111 citation statements)

References 37 publications

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“…In the past two decades, research has been extensive on this issue, with evidence from a multitude of markets internationally confirming that fund managers do indeed engage in peer-mimicking in their trading conduct. More specifically, institutional investors have been found to herd significantly in a rather diverse set of markets, including Germany (Walter and Weber, 2006;Kremer and Nautz, 2011), Portugal (Holmes et al, 2011), Taiwan (Chen et al, 2012), the UK (Wylie, 2005) and the US (e.g. Lakonishok et al, 1992;Wermers, 1999;Sias, 2004;Choi and Sias, 2009).…”

Section: Introductionmentioning

confidence: 99%

Institutional industry herding: Intentional or spurious?

Gavriilidis

Kallinterakis

Ferreira

2013

Journal of International Financial Markets, Institutions and Mo

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The present paper aims at investigating the extent to which institutional herding at the industry level is motivated by intent or not. We assess the presence of intent using both market and sector states based on three variables (returns; volatility; volume), in order to gauge whether herding intent at the sector level is more relevant to conditions prevailing in a sector or the market as a whole. Using a unique database of quarterly portfolio holdings of Spanish funds, we produce evidence denoting that institutional herding in the Spanish market is intentional for most sectors, manifesting itself mainly during periods when the market as a whole or the specific sector under examination has underperformed, generated rising/high volatility and exhibited rising/high volume.

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Section: Introductionmentioning

confidence: 99%

Institutional industry herding: Intentional or spurious?

Gavriilidis

Kallinterakis

Ferreira

2013

Journal of International Financial Markets, Institutions and Mo

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“…In a comprehensive study of a 20 years period, Wermers (1999) nds that mutual fund managers exhibit a slightly greater tendency to herd than pension fund managers. For the German market, Walter and Weber (2006) also detect herding behaviour among fund managers. However, they show that a large portion of this behaviour is unintentional due to changes in benchmark index compositions.…”

Section: Literature Reviewmentioning

confidence: 90%

“…Observational in uence, also known as social learning, is generally stated by the strand of literature that deals with herding behaviour (see e.g. Lakonishok et al (1992), Wermers (1999), Walter and Weber (2006) exchange of opinion, also known as word-of-mouth e ect 3 (see e.g. Shiller and Pound (1989), Hong et al (2005) and Pareek (2011)).…”

Section: Introductionmentioning

confidence: 99%

Fluctuations of Social Influence: Evidence from the Behaviour of Mutual Fund Managers During the Economic Crisis 2008/09

König

2012

SSRN Journal

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In this paper, I analyse the reciprocal social in uence on investment decisions within an international group of roughly 2,000 mutual fund managers who invested in companies in the DAX30. Using a robust estimation procedure, I provide empirical evidence that the average fund manager puts 0.69% more portfolio weight on a particular stock, if his peers on average assign a weight to the corresponding position which is 1% higher compared to other stocks in the portfolio. The dynamics of this in uence on the choice of portfolio weights suggest that fund managers adjust their behaviour according to the prevailing market situation and are more strongly in uenced by others in times of an economic downturn. Analysing the working locations of the fund managers, I conclude that more than 90% of the magnitude of in uence stems from the social learning. While this form of in uence varies much over time, the magnitude of in uence resulting from the exchange of opinion is more or less constant. 1 This corresponds to one third of the global investable equity opportunity set. 2 Hence, mutual fund managers' overall investment behaviour might have a considerable impact on the dynamics of stock prices, as similar investment decisions might drive prices into a speci c direction. In this context, it is important to point out how analogous decisions arise. Mutual fund managers are institutional investors with similar investment strategies, such that it is likely that they independently make the same decisions. However, they might also in uence each other such that subsequently investment decisions are aligned.There is a large body of nancial literature that provides empirical evidence in favour of the latter explanation, i.e. social in uence among mutual fund managers (see e.g. Hirshleifer and Teoh (2008) for a recent survey). Social in uence exclusively refers to the situation where fund managers directly inuence each other. This is opposed to indirect in uence that for instance arises via market price mechanisms. The empirical literature on social inuence among mutual fund managers can be divided into two main strands depending on how fund managers learn about other fund managers' investment decisions. Observational in uence, also known as social learning, is generally stated by the strand of literature that deals with herding behaviour (see e.g. Lakonishok et al. (1992), Wermers (1999), Walter and Weber (2006) 111 exchange of opinion, also known as word-of-mouth e ect 3 (see e.g. Shiller and Pound (1989), Hong et al. (2005) and Pareek (2011)).,With this paper, I contribute to both strands of literature by empirically determining the whole magnitude of social in uence among fund managers and dividing it into observational in uence and in uence from the exchange of opinion afterwards. Irrespective of the way the in uence takes place, I allow it to be heterogeneous among fund managers. This means I do not assume that a single fund manager is equally in uenced by all other fund managers.As a major contribution, I relate both observatio...

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“…Informational cascades occur due to observation of investment decision of other investors instead of using own private information by investor. Reputational herding occurs due to reputational concerns of manager instead of return of investors[ (Bikhchandani & Sharma, 2001); (Holmes, Kallinterakis, & Ferreira, 2011); (Walter and Weber (2006)]. …”

Section: Literature Reviewmentioning

confidence: 99%

“…This behavior can deteriorate price movements and add to volatility (Bikhchandani & Sharma, 2001). Momentum (buying past winner) in stock prices may result in overpricing which ultimately results in stock market volatility (Walter & Weber, 2006).…”

Section: Literature Reviewmentioning

confidence: 99%