Herding behavior on mutual fund investors in Brazil

Abstract

Herd behavior (i.e. correlated movement of investors), among mutual fund investors can force fund managers to sell or buy assets even when with bad timing, like selling on historical lows or buying at market tops, what could jeopardize investor’s return and cause even more volatility of prices, due to the high volume of trading of the herd. This study has found strong evidence of herd behavior heterogeneously distributed among different groups of investors, types of funds and periods of time of Brazilian mutual funds, an evidence against the homogeneous expectations assumption of efficient markets theory.