Who mimics whom in the equity fund market? Evidence from the Korean equity fund market

Motivated by theoretical analysis and unique Korean equity fund market data, this paper provides new evidence of herding between individual investors and institutional investors in the equity fund market along with related issues of risk aversion, cumulative performance, and the business cycle effect on herding. We find that individual equity fund investors follow institutional equity fund investors more closely than individual direct equity investors do in the direct equity investment market. We further find that individual equity fund investors are more risk averse than other equity investor groups and their herding behavior is pro-cyclical.