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Asset price effects of peer benchmarking: Evidence from a natural experiment

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  • Pedraza, Alvaro
  • Pulga, Fredy

Abstract

We estimate the effects of peer benchmarking by institutional investors on asset prices. In order to isolate the trades driven by peer benchmarking, we use a natural experiment involving a change in a government-imposed under-performance penalty applicable to Colombian pension funds. We find that peer effects generate excess stock return volatility, with stocks exhibiting short-term abnormal returns followed by returns reversal in the subsequent quarter. Additionally, peer benchmarking produces an excess in comovement across stock returns beyond the correlation implied by fundamentals.

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  • Pedraza, Alvaro & Pulga, Fredy, 2019. "Asset price effects of peer benchmarking: Evidence from a natural experiment," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 53-65.
    • Handle: RePEc:eee:reveco:v:62:y:2019:i:c:p:53-65
    DOI: 10.1016/j.iref.2019.02.012
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    Cited by:

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    2. Afanador,Juan Pablo & Davis,Richard Mark & Pedraza Morales,Alvaro Enrique, 2021. "Estimating the Gains from International Diversification : The Case of Pension Funds," Policy Research Working Paper Series 9635, The World Bank.
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    5. I. Koetsier & J.A. Bikker, 2018. "Herding behavior of Dutch pension funds in asset class investments," Working Papers 18-04, Utrecht School of Economics.
    6. Timmer, Yannick, 2018. "Cyclical investment behavior across financial institutions," Journal of Financial Economics, Elsevier, vol. 129(2), pages 268-286.
    7. Tanja Artiga Gonzalez & Iman van Lelyveld & Katarina Lucivjanska, 2018. "Pension fund equity performance: Patience, activity or both?," DNB Working Papers 606, Netherlands Central Bank, Research Department.
    8. Timmer, Yannick, 2016. "Cyclical investment behavior across financial institutions," Discussion Papers 08/2016, Deutsche Bundesbank.
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    10. Timmer, Yannick, 2016. "Cyclical investment behavior across financial institutions," ESRB Working Paper Series 18, European Systemic Risk Board.
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    More about this item

    Keywords

    Herding; Institutional investors; Asset prices; Comovement;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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