Herding Behavior of Mutual Fund Managers in Germany

Herding Behavior of Mutual Fund Managers in Germany

Andreas Oehler* Chair of Finance, Bamberg University Department of Management, Business Administration and Economics Kirschaeckerstr. 39, D-96045 Bamberg Tel.: (+49) 951-863-2536, Fax: (+49) 951-863-2538 e-mail: andreas.oehler@uni-bamberg.de

Stefan Wendt Bamberg University Department of Management, Business Administration and Economics Kirschaeckerstr. 39, D-96045 Bamberg Tel.: (+49) 951-863-2696, Fax: (+49) 951-863-2538 e-mail: stefan.wendt@uni-bamberg.de

This Draft: November 7, 2008 Abstract Herding behavior, i.e. the adjustment of a decision maker’ behavior, opinion, or expectations s due to real or illusionary (social) pressures, can be explained by numerous behavioral finance models, such as the cascade model or contagion. However, unambiguous empirical results are rare, mainly due to differing methodologies used in previous studies. We analyze the buying and selling activities of the managers of German mutual funds that primarily invest in equities over the period from 2000 to 2005. Our dataset covers about 70 percent of the total investments of all German equity mutual funds. Our results reveal that there is considerable herding behavior when mutual fund managers face market-wide cash inflows or cash outflows. In addition, mutual funds that only invest in German equities display stock-picking herding behavior when selecting which stocks to invest in.

Key Words:

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Herding behavior, Mutual funds, Behavioral finance

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We thank Oliver Schwindler and Thomas J. Walker for helpful comments and several mutual fund companies for providing us with their reports. We are grateful to Karla Bender, Nadine Bleise, Ralf Borger, Andreas Hanke, Nicolas Jaekel, Ralf Kastenholz, Nadine König, Felix Miederer, Kristina Ondrusch, Peter Thomas, and Kerstin Voeller for technical support.

Herding Behavior of Mutual Fund Managers in Germany

Abstract Herding behavior, i.e. the adjustment of a...