Does Fund Herding Help Stabilise Fund Flows? An Investigation in a Fund Mutual‐Holding Network Framework

We examine how fund herding affects fund flow performance by developing three herding measures based on a mutual‐holding network rather than merely identifying whether funds herd or not. We measure herding in terms of network connections, density, and peer influence to uncover latent patterns in fund herding. Our empirical findings reveal that fund herding is negatively linked to uncertainty in fund flows but positively related to fund flows. We also find that investor attention plays a key role in amplifying the herding effect on fund performance. Additionally, we show that the herding effect is not simply an attempt at window‐dressing. Lastly, we identify a “bellwether” effect, where herding tends to boost fund flows for successful funds while reducing flows for underperforming ones.