Mutual fund herding in response to hedge fund herding and the impacts on stock prices

Jiao, Yawen; Ye, Pengfei

doi:10.1016/j.jbankfin.2014.09.001

Cited by 24 publications

(6 citation statements)

References 66 publications

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“…This study is very indicative regarding the patterns of behaviors of people, specifically in the world of equity, with different studies of equal depth examining this phenomenon through the platforms of the online world. More importantly, the investment behavior deduced by examining the influence upon online platforms is indicative of the same trends seen in the Cryptocurrency economy (Jiao & Ye, 2014).…”

Section: Literature Reviewmentioning

confidence: 78%

The Relationship of Online Discourse on the Values of Bitcoin and Ethereum

Benchlouch¹

2020

Preprint

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With technology brazenly breaching through society’s barriers in countless diverse fields, the 21st century has revolutionized many age-old industries. One of the largest areas within society influenced by the progress of technology are the fields of finances, economy, and investment, coupled with the aspect of social influence. With this shift in society parallel to the advancement of contemporary technologies, thus becoming increasingly reliant on the tools made available, the complex yet traditional world of finance has pivoted, becoming contingent upon the use of cutting-edge technologies. This critical shift has introduced the world of Fintech, providing many innovative fiscal opportunities. The coined term, Fintech, is a general term referring to products as services for fiscal activities developed by entities unrelated to banks, insurance firms, nor online companies, providing alternatives to the traditional options available to the general public. (Gulamhuseinwala, Bull and Lewis, 2015). Resultantly of this Fintech trend, one of the largest and most promising fields of contemporary investment is recognized as that of Cryptocurrencies, with Bitcoin and Ethereum being the most recognized and heavily traded currencies. Many positive traits can be used to define the novelty of this new economy, with one of the main aspects being its peer to peer (P2P) nature of its trading process. However, beyond the tremendous advancements visible within the process of Cryptocurrency production and trade, one of the most important aspects is the influencers upon the valuation of the different currencies. Similarly to the progression of the economy which has transported the financial world to a digital economy, so has the social world, advancing discourse regarding many topics to the online environment. Thus, it is critical to analyze and assess the nature of online discourse regarding Cryptocurrencies. Explicitly, the chatter preceding to sharp rises and falls with Bitcoin and Ethereum, the most recognizable coins. Additionally, it is imperative to appraise the trends in the behavior and quantity of online discourse prior to a significant drop in Ethereum & Bitcoin.Within the online arena, there are countless different outlets and platforms for people to express themselves in general, or more importantly in this instance regarding the topic of Cryptocurrencies. By using platforms that are designated for discussion regarding financial topics or general social media platforms, the public is provided a critical platform utilized by countless individuals, many of whom are increasingly involved with the aforementioned topics. These platforms stipulate a stage for these individuals, who have become critical by voicing their opinions, thoughts, and experiences. Many of these influencers are sought after for their knowledge, specifically influencing the behavior of others. However, it is critical to evaluate the importance of additional aspects beyond the superficial such as who are the influencers, rather elements such as the content or nature of what is being discussed. Resultantly to trends of content, nature, and volume of what is being discussed in the online arena., people’s behavior regarding investments, specifically within Cryptocurrencies, are very possibly subjected to the influence of others, leading to rises and falls in coin valuation.

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Section: Literature Reviewmentioning

confidence: 78%

The Relationship of Online Discourse on the Values of Bitcoin and Ethereum

Benchlouch¹

2020

Preprint

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“…Although herding occurs in financial markets (Sias, ) and specifically the hedge fund industry (Jiao and Ye, ), little evidence exists of any possible social mechanisms. Our evidence shows that the identified communication practices serve as an infrastructure for the emergence of popular consensus trades where a number of firms adopt the same trade or position.…”

Section: Discussionmentioning

confidence: 99%

“…Second , there is empirical quantitative evidence of herding in the hedge fund sector ( Boyson, ) and its wider effects. For example, Jiao and Ye () show that mutual funds herd in response to hedge fund herding and the trading actions of these large mutual funds cause prices to move away from fair values and lead to additional market volatility. Third, and in direct relation to our intention to develop theory about the organizational underpinning of herding, research indicates that recruitment of managers in hedge funds follows a mentoring ‘lineage’ pattern, whereby a manager provides initial financial and professional support to traders once the latter begin their own funds.…”

Section: Communication and Herding In Financial Marketsmentioning

confidence: 99%

“…In the context of markets, herding commonly refers to several actors making the same investment decision either at the same time or in close succession, leading to a high concentration of similar market orders and higher risks. Although there is much empirical evidence of the existence of herding in the finance literature (Jiao and Ye, ), there are few explorations of the possible underlying social and organizational practices through which herding in financial markets may come about. In particular, the rich conceptualization that evolved in the management and economic sociology literatures around the notion of embeddedness (e.g.…”

Section: Introductionmentioning

confidence: 99%

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Close Communications: Hedge Funds, Brokers and the Emergence of Herding

Kellard

Millo

Simon

et al. 2016

British J of Management

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We examine how communication, evaluation and decision-making practices among competing market actors contribute to the establishment of herding and whether this has impact on market-wide phenomena such as prices and risk. Data are collected from interviews and observations with hedge fund industry participants in Europe, the USA and Asia. We examine both contemporaneous and biographical data, finding that decisionmaking relies on an elaborate two-tiered structure of connections among hedge fund managers and between them and brokers. This structure is underpinned by idea sharing and development between competing hedge funds leading to 'expertise-based' herding and an increased probability of over-embeddedness. We subsequently present a case study demonstrating the role that communication between competing hedge funds plays in the creation of herding and show that such trades affect prices by introducing an additional risk: the disregarding of information from sources outside the trusted connections.

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“…In contrast, noninformation‐based herding drives security prices away from fundamental values. In subsequent periods, price reversals or even price crashes occur (Brown et al., 2014; Deng et al., 2018; Jiao & Ye, 2014).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

To see is to believe: Corporate site visits and mutual fund herding

Quan

Xiang

et al. 2023

Financial Management

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Using a unique data set of corporate site visits by mutual funds to Chinese firms listed on the Shenzhen Stock Exchange from 2013 to 2021, we find that firms with visits (more visits) are associated with lower mutual fund herding than those with no (fewer) visits. In addition, we demonstrate that mutual funds’ visits to a firm drive the change in their herding propensity by verifying hard information (e.g., the firm's technology, innovation, accounting, and finance information) and obtaining soft information (e.g., management's risk appetite, employee morale, and corporate culture). Furthermore, corporate site visits are found to strengthen herding's price impact without return reversals. Overall, our results are consistent with information cascade theory.

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Mutual fund herding in response to hedge fund herding and the impacts on stock prices

Cited by 24 publications

References 66 publications

The Relationship of Online Discourse on the Values of Bitcoin and Ethereum

The Relationship of Online Discourse on the Values of Bitcoin and Ethereum

Close Communications: Hedge Funds, Brokers and the Emergence of Herding

To see is to believe: Corporate site visits and mutual fund herding

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