Following the Leader? Size-Dependent Herding in the US Equity Fund Market

We examine the herding behavior of individual investors on institutional investors in the US equity fund market. In this paper, individual investors are households entrusting money to mutual funds, while institutional investors are non-household entities. Our empirical investigation determines that the significant herding behavior of individual investors is based on the trading size of institutional investors. In particular, we find evidence that herding in the US equity mutual fund market is triggered by the largest selling and buying of institutional investors. This indicates that the presence of asymmetry in individual investors’ herding behavior depends on the size of institutional investors’ trade. Further, we find that herding in the US equity fund market is related to market-wide risk aversion, which is intensified in institutional investors’ big selling.