MOMENTUM INVESTMENT STRATEGIES, PORTFOLIO PERFORMANCE, AND HERDING - A STUDY OF MUTUAL FUND BEHAVIOR

This study analyzes the extent to which mutual funds purchase stocks b ased on their past returns as well as their tendency to exhibit ''herd ing'' behavior (i.e., buying and selling the same stocks at the same r ime). We find that 77 percent of the mutual funds were ''momentum inve stors,'' buying stocks that were past winners; however, most did not s ystematically sell past losers. On average, funds that invested on mom entum realized significantly better performance than other funds. We a lso find relatively weak evidence that funds tended to buy and sell th e same stocks at the same time.