An Examination of Herding Behavior of the Chinese Mutual Funds : A Time-Varying Perspective

This paper investigates the existence of herding behavior in the Chinese mutual fund market from a time-varying perspective. We examine the relationship between the dispersion of fund returns and the fund market returns using a Markov regime switching approach, and explore the driving factors of herding under different regimes. Our results suggest that herding behavior is time-varying and heterogeneous across different fund types, investment styles, fund sizes, and industrial groups. In addition, the observed herding behaviors are mainly driven by non-fundamentals. We also find that herding behavior is more pronounced during the up market and becomes insignificant during the down market