This paper analyzes whether herding and skillful managers may coexist. When herding appears, managers tend to present poor timing abilities; however, a weak herding level (a result commonly found in pension funds) may evidence a mixed scenario, where some managers develop skills, and others follow the herd. Additionally, when informational cascades emerge, some managers may act as leaders, anticipating others’ movements. Nonetheless, this anticipatory skill does not mean that leaders also anticipate market movements and present timing skills. Our results show herding and inter-temporal herding in a sample of Spanish pension funds, though the imitation behavior is not strong. We also find evidence of a mixed scenario, in which some non-herding managers present timing skills, while herding funds are not able to develop these abilities. Finally, we find successful timing for certain leaders, showing that the anticipation of others’ movements does not show real timing abilities.

This paper investigates the possible formation of informational cascades by traders in a random sample of 8,000 NYSE stock-days experiencing extreme price changes during 1998–2001. Our cascade measure is designed to detect informational cascades in high-frequency stock market prices. First, we find evidence of cascades on approximately 12% of the days when the NYSE experiences, on average, large price increases. This percentage increases to about 20% on days experiencing large price decreases, on average. Second, we find evidence that the interarrival times of trades in those stocks exhibiting significant informational cascades are generated by a nonlinear stochastic process. Third, the evidence supporting cascades is largely confined to smaller stocks and to stocks followed by fewer security analysts. Last, the occurrence of cascades appears to correlate with the incorporation of fundamental information into security prices.