Who mimics whom in the equity fund market? Evidence from the Korean equity fund market

• We extend theoretical analysis in herding behavior employing Koean equity fund data.
• We find stronger herding in equity fund market compared with direct market.
• We find that individual fund investors are more risk averse than other investor groups.
• We find that individual equity fund investors’ herding behavior is pro-cyclical.

Motivated by theoretical analysis and unique Korean equity fund market data, this paper provides new evidence of herding between individual investors and institutional investors in the equity fund market along with related issues of risk aversion, cumulative performance, and the business cycle effect on herding. We find that individual equity fund investors follow institutional equity fund investors more closely than individual direct equity investors do in the direct equity investment market. We further find that individual equity fund investors are more risk averse than other equity investor groups and their herding behavior is pro-cyclical.