Is anti-herding always a smart choice? Evidence from mutual funds
Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mu...
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sg-smu-ink.skbi-10292024-11-11T02:27:00Z Is anti-herding always a smart choice? Evidence from mutual funds LEE, John Byong-Tek MA, Jun MARGARITIS, Dimitris YANG, Wanyi Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mutual funds with contrarian buy behaviour and contrarian sell behaviour. The contrarian-buy behaviour reflects skill by positively predicting the cross-section of next period's mutual fund returns, while the contrarian-sell behaviour reflects a lack of skill associated with a negative prediction. These findings are robust to various risk-adjusted performance measures. Contrarian-buy funds outperform momentum-buy funds by 3% per year, while contrarian-sell funds underperform momentum-sell peers by about 4%. These findings are robust across different sizes and styles of mutual funds. Further analysis indicates that the asymmetric effect is reversed during recessions and disappears when market sentiment is high. We also study how mutual fund characteristics relate to contrarian buy and sell practices. We find that mutual funds with larger size, higher flow, lower tracking error, and no manager ownership are more likely to buy against the crowd but sell with the crowd. 2023-11-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/skbi/30 info:doi/10.1016/j.irfa.2023.102824 https://ink.library.smu.edu.sg/context/skbi/article/1029/viewcontent/Anti_herding_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Sim Kee Boon Institute for Financial Economics eng Institutional Knowledge at Singapore Management University Buy and sell asymmetry Contrarian trading Herding Mutual funds Finance and Financial Management Portfolio and Security Analysis |
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Buy and sell asymmetry Contrarian trading Herding Mutual funds Finance and Financial Management Portfolio and Security Analysis LEE, John Byong-Tek MA, Jun MARGARITIS, Dimitris YANG, Wanyi Is anti-herding always a smart choice? Evidence from mutual funds |
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Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mutual funds with contrarian buy behaviour and contrarian sell behaviour. The contrarian-buy behaviour reflects skill by positively predicting the cross-section of next period's mutual fund returns, while the contrarian-sell behaviour reflects a lack of skill associated with a negative prediction. These findings are robust to various risk-adjusted performance measures. Contrarian-buy funds outperform momentum-buy funds by 3% per year, while contrarian-sell funds underperform momentum-sell peers by about 4%. These findings are robust across different sizes and styles of mutual funds. Further analysis indicates that the asymmetric effect is reversed during recessions and disappears when market sentiment is high. We also study how mutual fund characteristics relate to contrarian buy and sell practices. We find that mutual funds with larger size, higher flow, lower tracking error, and no manager ownership are more likely to buy against the crowd but sell with the crowd. |
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LEE, John Byong-Tek MA, Jun MARGARITIS, Dimitris YANG, Wanyi |
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LEE, John Byong-Tek MA, Jun MARGARITIS, Dimitris YANG, Wanyi |
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LEE, John Byong-Tek |
title |
Is anti-herding always a smart choice? Evidence from mutual funds |
title_short |
Is anti-herding always a smart choice? Evidence from mutual funds |
title_full |
Is anti-herding always a smart choice? Evidence from mutual funds |
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Is anti-herding always a smart choice? Evidence from mutual funds |
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Is anti-herding always a smart choice? Evidence from mutual funds |
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is anti-herding always a smart choice? evidence from mutual funds |
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Institutional Knowledge at Singapore Management University |
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2023 |
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https://ink.library.smu.edu.sg/skbi/30 https://ink.library.smu.edu.sg/context/skbi/article/1029/viewcontent/Anti_herding_av.pdf |
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