Deconstructing Herding : Evidence from Pension Fund Investment Behavior
Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110622091607 http://hdl.handle.net/10986/3464 |
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okr-10986-3464 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTING ACTIVE ASSETS ALTERNATIVE INVESTMENT ARBITRAGE ASSET ALLOCATION ASSET CHARACTERISTICS ASSET CLASS ASSET CLASSES ASSET MANAGEMENT ASSET MANAGERS ASSET TYPE ASSETS UNDER MANAGEMENT ASYMMETRIC INFORMATION BANK POLICY BENCHMARK BENCHMARK YIELD BENCHMARK YIELD CURVE BENCHMARKS BID BOND BOND AUCTIONS BOND FUNDS BOND RATINGS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKET ACTIVITY CAPITAL MARKET DEVELOPMENT CAPITAL MARKET REFORMS CAPITAL RAISING CAPITALIZATION CENTRAL BANK CONFLICTS OF INTEREST CONTRACTUAL SAVINGS CONTRACTUAL SAVINGS INSTITUTIONS CORPORATE BOND CORPORATE BOND ISSUERS CORPORATE BONDS CORPORATE GOVERNANCE CORPORATE INVESTMENT COUPONS DEBT DEBT MARKETS DEBTOR DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DOMESTIC CAPITAL DOMESTIC CAPITAL MARKETS DOMESTIC EQUITIES DOMESTIC EQUITY EMERGING MARKET EMERGING MARKET DEBT EMERGING MARKETS EMERGING STOCK MARKET EQUITIES EQUITY HOLDINGS EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY MUTUAL FUNDS EQUITY PORTFOLIO FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEMS FIXED INCOME FIXED INCOME ASSETS FIXED INCOME MARKETS FIXED INCOME SECURITIES FLOW OF FUNDS FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN MUTUAL FUNDS FUND INDUSTRY FUND MANAGEMENT FUND MANAGERS FUND PORTFOLIOS FUND TYPE FUND TYPES GLOBALIZATION GOVERNMENT BOND GOVERNMENT BONDS GOVERNMENT PAPER GROUPS OF FUNDS INCOME INSTRUMENTS INDIVIDUAL ACCOUNT INDIVIDUAL ACCOUNTS INDIVIDUAL INVESTMENTS INDIVIDUAL INVESTORS INSTITUTIONAL INVESTOR INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERMEDIATE MATURITIES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INVESTABLE ASSETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT FUNDS INVESTMENT INSTRUMENTS INVESTMENT PATTERN INVESTMENT PATTERNS INVESTMENT REGULATIONS INVESTMENT RESTRICTIONS INVESTMENT STRATEGIES INVESTMENT STRATEGY INVESTMENT VEHICLES INVESTOR BASE ISSUANCE ISSUANCES LEVEL OF RISK LIFE INSURANCE LIFE INSURANCE COMPANIES LIQUIDITY MACROECONOMIC POLICIES MANAGEMENT COMPANIES MARKET DEPTH MARKET EVIDENCE MARKET INFORMATION MARKET LIQUIDITY MARKET PARTICIPANTS MARKET PRICES MARKET TRANSPARENCY MARKET VALUE MARKET VOLATILITY MATURITIES MATURITY MATURITY DATE MOMENTUM STRATEGIES MOMENTUM TRADER MOMENTUM TRADING MORTGAGE MORTGAGE BOND MORTGAGE BONDS MORTGAGE-BACKED SECURITIES MUTUAL FUND MUTUAL FUND MANAGERS MUTUAL FUND STRATEGIES MUTUAL FUNDS OPPORTUNITY COST OUTSTANDING CORPORATE BONDS OVERALL PORTFOLIO PAST PERFORMANCE PENSION PENSION FUND PENSION FUND INVESTMENT PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SYSTEM PENSIONS POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATION PORTFOLIO ALLOCATIONS PORTFOLIO COMPOSITIONS PORTFOLIO HOLDING PORTFOLIO INVESTMENTS PORTFOLIO PERFORMANCE PORTFOLIOS PRICE FORMATION PRIMARY MARKETS PUBLIC OFFERINGS PUBLIC SAVINGS PUBLIC SECTOR BONDS RATE OF RETURN REAL RATE OF RETURN REGULATORY CONSTRAINTS REGULATORY FRAMEWORK RESERVE RESERVES RETAIL INVESTORS RETIREMENT INCOME SECURITY RETURN RETURN VOLATILITY RETURNS RISK PARAMETERS RISK PROFILES SECONDARY MARKETS SECURITIES SECURITIES MARKETS SET OF FUNDS SINGLE PORTFOLIO SOPHISTICATED INVESTORS STOCK EXCHANGE STOCK MARKET STOCK MARKET DEVELOPMENT STOCK MARKET INDEX STOCK MARKET LIQUIDITY STOCKS TRADING TRADING DAYS TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY TURNOVER TURNOVER RATIO TURNOVER RATIOS TYPES OF FUNDS UNDERLYING ASSETS |
| spellingShingle |
ACCOUNTING ACTIVE ASSETS ALTERNATIVE INVESTMENT ARBITRAGE ASSET ALLOCATION ASSET CHARACTERISTICS ASSET CLASS ASSET CLASSES ASSET MANAGEMENT ASSET MANAGERS ASSET TYPE ASSETS UNDER MANAGEMENT ASYMMETRIC INFORMATION BANK POLICY BENCHMARK BENCHMARK YIELD BENCHMARK YIELD CURVE BENCHMARKS BID BOND BOND AUCTIONS BOND FUNDS BOND RATINGS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKET ACTIVITY CAPITAL MARKET DEVELOPMENT CAPITAL MARKET REFORMS CAPITAL RAISING CAPITALIZATION CENTRAL BANK CONFLICTS OF INTEREST CONTRACTUAL SAVINGS CONTRACTUAL SAVINGS INSTITUTIONS CORPORATE BOND CORPORATE BOND ISSUERS CORPORATE BONDS CORPORATE GOVERNANCE CORPORATE INVESTMENT COUPONS DEBT DEBT MARKETS DEBTOR DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DOMESTIC CAPITAL DOMESTIC CAPITAL MARKETS DOMESTIC EQUITIES DOMESTIC EQUITY EMERGING MARKET EMERGING MARKET DEBT EMERGING MARKETS EMERGING STOCK MARKET EQUITIES EQUITY HOLDINGS EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY MUTUAL FUNDS EQUITY PORTFOLIO FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEMS FIXED INCOME FIXED INCOME ASSETS FIXED INCOME MARKETS FIXED INCOME SECURITIES FLOW OF FUNDS FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN MUTUAL FUNDS FUND INDUSTRY FUND MANAGEMENT FUND MANAGERS FUND PORTFOLIOS FUND TYPE FUND TYPES GLOBALIZATION GOVERNMENT BOND GOVERNMENT BONDS GOVERNMENT PAPER GROUPS OF FUNDS INCOME INSTRUMENTS INDIVIDUAL ACCOUNT INDIVIDUAL ACCOUNTS INDIVIDUAL INVESTMENTS INDIVIDUAL INVESTORS INSTITUTIONAL INVESTOR INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERMEDIATE MATURITIES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INVESTABLE ASSETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT FUNDS INVESTMENT INSTRUMENTS INVESTMENT PATTERN INVESTMENT PATTERNS INVESTMENT REGULATIONS INVESTMENT RESTRICTIONS INVESTMENT STRATEGIES INVESTMENT STRATEGY INVESTMENT VEHICLES INVESTOR BASE ISSUANCE ISSUANCES LEVEL OF RISK LIFE INSURANCE LIFE INSURANCE COMPANIES LIQUIDITY MACROECONOMIC POLICIES MANAGEMENT COMPANIES MARKET DEPTH MARKET EVIDENCE MARKET INFORMATION MARKET LIQUIDITY MARKET PARTICIPANTS MARKET PRICES MARKET TRANSPARENCY MARKET VALUE MARKET VOLATILITY MATURITIES MATURITY MATURITY DATE MOMENTUM STRATEGIES MOMENTUM TRADER MOMENTUM TRADING MORTGAGE MORTGAGE BOND MORTGAGE BONDS MORTGAGE-BACKED SECURITIES MUTUAL FUND MUTUAL FUND MANAGERS MUTUAL FUND STRATEGIES MUTUAL FUNDS OPPORTUNITY COST OUTSTANDING CORPORATE BONDS OVERALL PORTFOLIO PAST PERFORMANCE PENSION PENSION FUND PENSION FUND INVESTMENT PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SYSTEM PENSIONS POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATION PORTFOLIO ALLOCATIONS PORTFOLIO COMPOSITIONS PORTFOLIO HOLDING PORTFOLIO INVESTMENTS PORTFOLIO PERFORMANCE PORTFOLIOS PRICE FORMATION PRIMARY MARKETS PUBLIC OFFERINGS PUBLIC SAVINGS PUBLIC SECTOR BONDS RATE OF RETURN REAL RATE OF RETURN REGULATORY CONSTRAINTS REGULATORY FRAMEWORK RESERVE RESERVES RETAIL INVESTORS RETIREMENT INCOME SECURITY RETURN RETURN VOLATILITY RETURNS RISK PARAMETERS RISK PROFILES SECONDARY MARKETS SECURITIES SECURITIES MARKETS SET OF FUNDS SINGLE PORTFOLIO SOPHISTICATED INVESTORS STOCK EXCHANGE STOCK MARKET STOCK MARKET DEVELOPMENT STOCK MARKET INDEX STOCK MARKET LIQUIDITY STOCKS TRADING TRADING DAYS TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY TURNOVER TURNOVER RATIO TURNOVER RATIOS TYPES OF FUNDS UNDERLYING ASSETS Raddatz, Claudio Schmukler, Sergio L. Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| geographic_facet |
Latin America & Caribbean Latin America & Caribbean The World Region The World Region South America America |
| relation |
Policy Research working paper ; no. WPS 5700,Paper is funded by the Knowledge for Change
Program (KCP) |
| description |
Pension funds have been expected to
invest in a wide range of securities and provide liquidity
to domestic capital markets since they are the most
sophisticated investors, with plenty of resources to gather
private information and manage portfolios professionally.
However, by analyzing unique, monthly asset-level data from
the pioneer case of Chile, this paper shows that pension
funds tend to herd. This is consistent with pension funds
copying each other in their investment strategies as a way
to extract information, boost returns, and reduce risk. The
authors compute measures of herding across asset classes
(equities, government bonds, and private sector bonds) and
at different pension fund industry levels. The results show
that pension funds herd more in assets for which they have
less market information and when risk increases. Moreover,
herding is more prevalent across funds that narrowly compete
with each other, that is, when comparing funds of the same
type across pension fund administrators. There is much less
herding within pension fund administrators and across
pension fund administrators as a whole. This herding pattern
is consistent with incentives for managers to be close to
industry benchmarks, which might be driven by both market
forces and regulation. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Raddatz, Claudio Schmukler, Sergio L. |
| author_facet |
Raddatz, Claudio Schmukler, Sergio L. |
| author_sort |
Raddatz, Claudio |
| title |
Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| title_short |
Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| title_full |
Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| title_fullStr |
Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| title_full_unstemmed |
Deconstructing Herding : Evidence from Pension Fund Investment Behavior |
| title_sort |
deconstructing herding : evidence from pension fund investment behavior |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110622091607 http://hdl.handle.net/10986/3464 |
| _version_ |
1764387041155481600 |
| spelling |
okr-10986-34642021-04-23T14:02:10Z Deconstructing Herding : Evidence from Pension Fund Investment Behavior Raddatz, Claudio Schmukler, Sergio L. ACCOUNTING ACTIVE ASSETS ALTERNATIVE INVESTMENT ARBITRAGE ASSET ALLOCATION ASSET CHARACTERISTICS ASSET CLASS ASSET CLASSES ASSET MANAGEMENT ASSET MANAGERS ASSET TYPE ASSETS UNDER MANAGEMENT ASYMMETRIC INFORMATION BANK POLICY BENCHMARK BENCHMARK YIELD BENCHMARK YIELD CURVE BENCHMARKS BID BOND BOND AUCTIONS BOND FUNDS BOND RATINGS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKET ACTIVITY CAPITAL MARKET DEVELOPMENT CAPITAL MARKET REFORMS CAPITAL RAISING CAPITALIZATION CENTRAL BANK CONFLICTS OF INTEREST CONTRACTUAL SAVINGS CONTRACTUAL SAVINGS INSTITUTIONS CORPORATE BOND CORPORATE BOND ISSUERS CORPORATE BONDS CORPORATE GOVERNANCE CORPORATE INVESTMENT COUPONS DEBT DEBT MARKETS DEBTOR DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DOMESTIC CAPITAL DOMESTIC CAPITAL MARKETS DOMESTIC EQUITIES DOMESTIC EQUITY EMERGING MARKET EMERGING MARKET DEBT EMERGING MARKETS EMERGING STOCK MARKET EQUITIES EQUITY HOLDINGS EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY MUTUAL FUNDS EQUITY PORTFOLIO FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEMS FIXED INCOME FIXED INCOME ASSETS FIXED INCOME MARKETS FIXED INCOME SECURITIES FLOW OF FUNDS FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN MUTUAL FUNDS FUND INDUSTRY FUND MANAGEMENT FUND MANAGERS FUND PORTFOLIOS FUND TYPE FUND TYPES GLOBALIZATION GOVERNMENT BOND GOVERNMENT BONDS GOVERNMENT PAPER GROUPS OF FUNDS INCOME INSTRUMENTS INDIVIDUAL ACCOUNT INDIVIDUAL ACCOUNTS INDIVIDUAL INVESTMENTS INDIVIDUAL INVESTORS INSTITUTIONAL INVESTOR INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERMEDIATE MATURITIES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INVESTABLE ASSETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT FUNDS INVESTMENT INSTRUMENTS INVESTMENT PATTERN INVESTMENT PATTERNS INVESTMENT REGULATIONS INVESTMENT RESTRICTIONS INVESTMENT STRATEGIES INVESTMENT STRATEGY INVESTMENT VEHICLES INVESTOR BASE ISSUANCE ISSUANCES LEVEL OF RISK LIFE INSURANCE LIFE INSURANCE COMPANIES LIQUIDITY MACROECONOMIC POLICIES MANAGEMENT COMPANIES MARKET DEPTH MARKET EVIDENCE MARKET INFORMATION MARKET LIQUIDITY MARKET PARTICIPANTS MARKET PRICES MARKET TRANSPARENCY MARKET VALUE MARKET VOLATILITY MATURITIES MATURITY MATURITY DATE MOMENTUM STRATEGIES MOMENTUM TRADER MOMENTUM TRADING MORTGAGE MORTGAGE BOND MORTGAGE BONDS MORTGAGE-BACKED SECURITIES MUTUAL FUND MUTUAL FUND MANAGERS MUTUAL FUND STRATEGIES MUTUAL FUNDS OPPORTUNITY COST OUTSTANDING CORPORATE BONDS OVERALL PORTFOLIO PAST PERFORMANCE PENSION PENSION FUND PENSION FUND INVESTMENT PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SYSTEM PENSIONS POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATION PORTFOLIO ALLOCATIONS PORTFOLIO COMPOSITIONS PORTFOLIO HOLDING PORTFOLIO INVESTMENTS PORTFOLIO PERFORMANCE PORTFOLIOS PRICE FORMATION PRIMARY MARKETS PUBLIC OFFERINGS PUBLIC SAVINGS PUBLIC SECTOR BONDS RATE OF RETURN REAL RATE OF RETURN REGULATORY CONSTRAINTS REGULATORY FRAMEWORK RESERVE RESERVES RETAIL INVESTORS RETIREMENT INCOME SECURITY RETURN RETURN VOLATILITY RETURNS RISK PARAMETERS RISK PROFILES SECONDARY MARKETS SECURITIES SECURITIES MARKETS SET OF FUNDS SINGLE PORTFOLIO SOPHISTICATED INVESTORS STOCK EXCHANGE STOCK MARKET STOCK MARKET DEVELOPMENT STOCK MARKET INDEX STOCK MARKET LIQUIDITY STOCKS TRADING TRADING DAYS TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY TURNOVER TURNOVER RATIO TURNOVER RATIOS TYPES OF FUNDS UNDERLYING ASSETS Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios professionally. However, by analyzing unique, monthly asset-level data from the pioneer case of Chile, this paper shows that pension funds tend to herd. This is consistent with pension funds copying each other in their investment strategies as a way to extract information, boost returns, and reduce risk. The authors compute measures of herding across asset classes (equities, government bonds, and private sector bonds) and at different pension fund industry levels. The results show that pension funds herd more in assets for which they have less market information and when risk increases. Moreover, herding is more prevalent across funds that narrowly compete with each other, that is, when comparing funds of the same type across pension fund administrators. There is much less herding within pension fund administrators and across pension fund administrators as a whole. This herding pattern is consistent with incentives for managers to be close to industry benchmarks, which might be driven by both market forces and regulation. 2012-03-19T18:02:56Z 2012-03-19T18:02:56Z 2011-06-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110622091607 http://hdl.handle.net/10986/3464 English Policy Research working paper ; no. WPS 5700,Paper is funded by the Knowledge for Change Program (KCP) CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper Latin America & Caribbean Latin America & Caribbean The World Region The World Region South America America |