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Portfolio and Security Analysis
Singapore Management University
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Is Anti-Herding Always A Smart Choice? Evidence From Mutual Funds, John Byong-Tek Lee, Jun Ma, Dimitris Margaritis, Wanyi Yang
Is Anti-Herding Always A Smart Choice? Evidence From Mutual Funds, John Byong-Tek Lee, Jun Ma, Dimitris Margaritis, Wanyi Yang
Sim Kee Boon Institute for Financial Economics
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% …