Publication Type

Journal Article

Version

acceptedVersion

Publication Date

11-2023

Abstract

Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mutual funds with contrarian buy behaviour and contrarian sell behaviour. The contrarian-buy behaviour reflects skill by positively predicting the cross-section of next period's mutual fund returns, while the contrarian-sell behaviour reflects a lack of skill associated with a negative prediction. These findings are robust to various risk-adjusted performance measures. Contrarian-buy funds outperform momentum-buy funds by 3% per year, while contrarian-sell funds underperform momentum-sell peers by about 4%. These findings are robust across different sizes and styles of mutual funds. Further analysis indicates that the asymmetric effect is reversed during recessions and disappears when market sentiment is high. We also study how mutual fund characteristics relate to contrarian buy and sell practices. We find that mutual funds with larger size, higher flow, lower tracking error, and no manager ownership are more likely to buy against the crowd but sell with the crowd.

Keywords

Buy and sell asymmetry, Contrarian trading, Herding, Mutual funds

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Publication

International Review of Financial Analysis

Volume

90

First Page

1

Last Page

17

ISSN

1057-5219

Identifier

10.1016/j.irfa.2023.102824

Publisher

Elsevier

Embargo Period

8-28-2023

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.irfa.2023.102824

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