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Deconstructing Herding: Evidence from Pension Fund Investment Behavior

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  • Claudio Raddatz

    ()

  • Sergio Schmukler

    ()

Abstract

In this paper, we examine herding across asset classes and industry levels. We also study what incentives managers at various layers of the financial industry face when investing. To do so, we use unique and detailed monthly portfolios between 1996 and 2005 from pension funds in Chile, a pioneer in pension-fund reform. The results show that pension funds herd more in assets that have more risk and for which pension funds have less market information. Furthermore, the results show that herding is more prevalent for funds that narrowly compete with each other, namely, when comparing funds of the same type across pension fund administrators (PFAs). There is much less herding across PFAs as a whole and in individual pension funds within PFAs. These herding patterns are consistent with incentives for managers to be close to industry benchmarks, and might be also driven by market forces and partly by regulation. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 43 (2013)
Issue (Month): 1 (February)
Pages: 99-126

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Handle: RePEc:kap:jfsres:v:43:y:2013:i:1:p:99-126

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Web page: http://www.springerlink.com/link.asp?id=102934

Related research

Keywords: Institutional investors; Portfolio allocation; Investment patterns; Capital market development; G11; G12; G23; G28; O16;

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Cited by:
  1. Didier, Tatiana & Schmukler, Sergio L., 2013. "Financial development in Latin America and the Caribbean : stylized facts and the road ahead," Policy Research Working Paper Series 6582, The World Bank.

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