Deconstructing Herding: Evidence from Pension Fund Investment Behavior

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Impact of herding behavior and overconfidence bias on investors’ decision-making in Pakistan

“…The results showed that the prices significantly were deviated from their fundamental value. Raddatz and Schmukler (2011) analyzed the herding behavior of pension fund managers by analyzing unique, monthly asset-level data from the pioneer case of Chile. The result showed that the fund manager follows the strategies of each other in order to maximize profit and reduce the risk.…”

The case against active pension funds: Evidence from the Turkish Private Pension System

“…They argue that from a diversification point of view the fund is overinvested in government bonds and underinvested in equities. Finally, Kominek (2012) and Raddatz and Schmukler (2013) (using different measures) and point to regulatory rules such as minimum return requirements or underperformance penalties as potential causes.…”

Pension fund equity performance: Patience, activity or both?

“…They conclude that herds consist of same-sized funds with similar sponsor types. In addition, Raddatz and Schmukler (2013) report a similar pattern in the Chilean pension fund industry, while Voronkova and Bohl (2005) nd evidence of herding in the Polish pension fund market. These ndings are related to those in the mutual fund industry; see, for example, Hunter, Kandel, Kandel, and Wermers (2014) for a discussion of the importance of active peer benchmarks in investment allocation.…”