A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds

In this paper, we examine the degree of herding and momentum trading among emerging market mutual funds. We use a novel database containing the country holdings of hundreds of individual funds on a monthly basis for the period 1996-2000. Overall, there is substantial heterogeneity in the behavior of funds. We find that the degree of herding computed as in Lakonishok, Shleifer, and Vishny (1992) is statistically significant, but moderate. Herding is more prevalent among open-end funds than among closed-end funds. We also find some evidence that funds follow momentum strategies. Neither momentum nor herding behavior are more accentuated during crises than during tranquil times