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How Do Fund Managers Invest: Self Strategy of Herding in Private Pension Funds?

Author

Listed:
  • Jose Olivares
  • Jean P. Sepulveda

    (School of Business and Economics, Universidad del Desarrollo)

Abstract

We use Sias (2014) approach to decompose the correlation among investment strategies followed by pension funds administrators in the Chilean private pension fund system during the periods 1997-2001 and 2002-2005, and find that most of this correlation is explained by herding behavior. That is, fund managers mimicking the investment strategy of other funds. We argue that the obligated minimum guaranteed return that pension funds institutions must fulfill, created the incentive for fund managers to herd.

Suggested Citation

  • Jose Olivares & Jean P. Sepulveda, 2007. "How Do Fund Managers Invest: Self Strategy of Herding in Private Pension Funds?," Past Working Papers 01, Universidad del Desarrollo, School of Business and Economics, revised Sep 2007.
    • Handle: RePEc:dsr:pastwp:01
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    File URL: http://repositorio.udd.cl/bitstream/handle/11447/15/wp01.pdf
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    References listed on IDEAS

    as
    1. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    2. Richard W. Sias, 2004. "Institutional Herding," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 165-206.
    3. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, April.
    4. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    5. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    6. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pension funds; herding; performance;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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