Herding and timing abilities: are both possible?

Abstract

We examine the existence of herding by institutional investors, analysing whether herding measures are affected in a mixed scenario, where certain skilled managers can develop timing abilities, and others herd. Studying a sample of Spanish pension funds investing in European equities from 2002 to 2013, this paper contributes to the financial literature by considering the possible influence of a range of timing abilities in herding. The results show the existence of certain timing abilities and herding, being the herding phenomenon more evident at the beginning of the current crisis and after the financial restructuring process experienced in Spain since 2010. Nonetheless, the market equilibrium is not affected in the long term. Our results also display that herding measures vary when taking into account timing abilities, so traditional herding measures do not fully capture the existence of mixed scenarios.