Question

The term 'herd behaviour' refers to A. the tendency for different fund managers to adopt the...

The term 'herd behaviour' refers to

A. the tendency for different fund managers to adopt the same portfolio mix

B. the way in which returns on various investment classes tend to converge

C. the way in which funds use fee structures to group customers together

D. none of these

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Answer #1

Answer:-

Herd Behaviour in the financial market refers to the tendency or the behaviour of the investors to copy the others action. Everyone in the stock market reacts in the same way to any information. They do not follow their own decision instead they follow others decision. This decision is more in fund managers because it is easy to imitate the competitors at their level. The fund managers who execute the trade with same broker will herd and also this brokers will pass information to their clients and this disseminate the information into other clients.

Therefore, 'herd behaviour' refers to the tendency for different fund managers to adopt the same portfolio mix.

Hence, the correct option is A.

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