Abstract
This paper explores the herding dynamics in US mutual funds’ trading and documents the evidence of increased herding over time. I observe (slightly) higher levels of overall herding compared to main stream herding literature with asymmetry on the buy and sell side; the overall herding level is weakly affected by the scale economies and significantly influenced by a fund’s style. Increased participation of mutual funds to the financial markets, proxied by number of quarterly traded securities, appears to be positively correlated with mutual funds’ herding. Both stocks’ beta and market volatility are found to be crucial determinants of herding. A higher demand for the smaller-sized stocks confirms the presence of small-firm-effect anomaly. In addition, I find US mutual funds’ herding more in bad market scenarios compared with good market environment.
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