Herding in a Concentrated Market: a Question of Intent


  • We thank an anonymous referee, the editor, John Doukas, participants at the EFMA 2010 Annual Conference in Aarhus, Denmark, Krishna Paudyal, David Hillier and other participants of staff seminars at Leeds University Business School and the Department of Management, University of Antwerp for helpful comments and suggestions on earlier versions of this paper. Any remaining errors are our own. Correspondence: Phil Holmes.


While considerable evidence exists that institutions herd, the issue of why herding takes place remains unresolved. Using monthly holdings data for Portugal, we find clear evidence of herding and investigate whether such behaviour is intentional or spurious. By analysing herding under different market conditions, we conclude it is intentional. Month-of-the-quarter analysis suggests reputational reasons drive behaviour. Results are consistent with herding interacting with window dressing to determine funds, buy and sell decisions. The findings are important in understanding market dynamics and fund managers’ behaviour and are of great significance to investors in managed funds.