Institutional Traders’ Behavior in an Emerging Stock Market: Empirical Evidence on Polish Pension Fund Investors

Abstract

In this paper, we contribute to the literature on institutional herding and feedback trading by analysing the investment behavior of pension funds on the Polish stock market. Pension funds entered into the stock market due to the national pension system reform in 1999, providing a unique opportunity to receive deeper insight into the behavior of institutional investors in an emerging capital market. Our results show that Polish pension fund investors are to a greater extent involved in herd-like behavior and pursue feedback trading strategies more often than their counterparts in mature markets. This finding is primarily attributed to a stringent investment regulation and high market concentration. We do not detect, however, that trading by the pension funds exerts significant influence on the future stock prices. Copyright Blackwell Publishers Ltd, 2005.

ESG Issues among Fund Managers—Factors and Motives

“…As herding behavior is more probable among investors from the same community [55,56], having similar investment experience, access to similar information or a common regulatory framework and environment within which they work [61], a stronger predisposition to incorporate ESG issues in investment decision making may thus occur as a result of longer work routine in a homogenous environment. Furthermore, the above predisposition is also more characteristic for asset managers who are more sensitive to herding through a higher dependency on relative fund performance in the overall remuneration.…”

“…The factors that may trigger herding behavior are often objective-for example, educational background, investment experience, access to similar information or the common regulatory framework and environment within which they work [61]. Herding behavior may also derive from managers' similar investing styles [62].…”

Institutional industry herding: Intentional or spurious?

“…Voronkova and Bohl, 2005;Choi and Sias, 2009;Chen et al, 2012). An interesting question here is whether the observed industry herding results from funds following each other intentionally into and out of industries or not.…”

“…However, the presence of factors common among investment professionals may lead fund managers to exhibit correlation in their trades, thus generating the impression of herding, without the latter being due to intent (spurious herding). Such correlation can be the result of fund managers being characterized by relative homogeneity (De Bondt and Teh, 1997) given their common features (similarities in their educational background, investment experience, the signals they receive and their processing) and the common regulatory framework they are subject to (Voronkova and Bohl, 2005).…”

“…An example is the ample evidence (Voronkova and Bohl, 2005;Choi and Sias, 2009;Chen et al, 2012) indicating that fund managers herd significantly when investing in industries. Since the key herding motives (intentional and spurious) mentioned previously are as much influential on fund managers' decision to herd at the industry level as they are at the individual stock level (Choi and Sias, 2009), the Holmes et al (2011) approach described above can be applied to assess the presence of intent in institutional industry herding.…”