The term 'herd behaviour' refers to

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BlackTom AI · Accepted Answer

Question restatement: The term 'herd behaviour' refers to which of the following options?

Option a: the way in which funds use fee structures to group customers together. This describes marketing or pricing strategies rather than herd-like behavior among fund managers. Fee structures grouping customers is about product design or segmentation, not about imitation across professionals, so this is not a correct depiction of herd behavior.

Option b: the tendency for different fund managers to adopt the same portfolio mix. This captures the essence of herd behavior, which is when individuals or firms imitate the actions of others, often leading to similar investment choices across managers even in the absence of unique information. The concept involves conformity and imitation within a group, explaining why multiple managers end up with similar holdings.

Option c: the way in which returns on various investment classes tend to converge. Convergence of returns across asset classes is more about market correlations or diversification effects, not about the social or behavioral phenomenon of herd imitation among fund managers. This option describes a market phenomenon rather than herd behavior.

Option d: None of these. Since option b aligns with the standard definition of herd behavior in this context, this option would be incorrect if the goal is to identify the herd behavior statement.

In summary, option b accurately reflects herd behavior as the imitation or copying of portfolio choices among different fund managers, while the other options describe unrelated concepts or incorrect interpretations of herd behavior.

MCD2170 - T3 - 2025 Week 10 post class homework

The term 'herd behaviour' refers to

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