American Economic Review 1994

Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior

Mark Grinblatt^1,2; Sheridan Titman^1,3; Russ Wermers⁴

¹ National Bureau of Economic Research · ² University of California, Los Angeles · ³ The University of Texas at Austin · ⁴ University of Maryland - Robert H. Smith School of Business

Abstract

This study analyzes the extent to which mutual funds purchase stocks based on their past returns as well as their tendency to exhibit 'herding' behavior (i.e., buying and selling the same stocks at the same time). The authors find that 77 percent of the mutual funds were 'momentum investors, ' buying stocks that were past winners; however, most did not systematically sell past losers. On average, funds that invested on momentum realized significantly better performance than other funds. The authors also find relatively weak evidence that funds tended to buy and sell the same stocks at the same time.

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