The Term Structure of Mutual Fund Herding

This paper investigates herding behaviors in U.S treasury markets. We document novel evidence that mutual funds exhibit strong herding behaviors on trading long-term treasuries. This “term-structure” herding is only pronounced for buy herding, not sell herding. The relationship between herding and time-to-maturity is stronger for funds with high fund flow volatility. Such behaviors also exist for Treasury Inflation Protected Securities (TIPS) and for treasuries with both high and low coupon rates, suggesting that herding is not driven by correlated inflation expectations. Similar results are obtained for investment-grade corporate bonds as well. Overall, our results suggest that mutual funds' short investment horizons contribute to the term-structure herding behaviors in the bond markets