Institutional industry herding: Intentional or spurious?

•Fund managers herd intentionally when herding in different industries.•Intent is reflected through a variety of factors, linked to both market- and sector-specific conditions in each sector.•Intent mainly appears when the market/sector has underperformed, generated rising/high volatility and exhibited rising/high volume. This paper investigates the extent to which institutional herding at the industry level is motivated by intent. We assess intent using both market and sector states based on three variables (returns; volatility; volume), in order to gauge whether herding intent is more relevant to conditions prevailing in a sector or the market as a whole. Using a unique database of quarterly portfolio holdings of Spanish funds, we produce evidence that institutional herding in the Spanish market is intentional for most sectors, manifesting itself mainly during periods when the market as a whole or the specific sector under examination has underperformed, generated rising/high volatility and exhibited rising/high volume.