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Regulatory induced herding? Evidence from Polish pension funds

Author

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  • Zbigniew Kominek

    (European Bank of Reconstruction and Development)

Abstract

The paper documents herding among pension fund managers in Poland. Herding occurs despite the lack of an economically significant link between fund performance and the flow of new capital or members. To explain this phenomenon, the paper outlines a model that attributes herding to performance incentive contracts imposed by the authorities in Poland. The model shows that penalties for underperformance imposed by the regulator are likely to cause fund managers to follow each other’s portfolio choices and pursue similar investment strategies. Since herding causes similar portfolio allocations by all funds, the results call for a reduction in the number of funds, or a review of the relative performance incentive system and current constraints on portfolio allocation. The latter could also help reduce the dominance of government bonds in investment portfolios of pension funds.

Suggested Citation

  • Zbigniew Kominek, 2006. "Regulatory induced herding? Evidence from Polish pension funds," Working Papers 96, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:96
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    File URL: http://www.ebrd.com/downloads/research/economics/workingpapers/wp0096.pdf
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    Cited by:

    1. Pagnoncelli, Bernardo K. & Cifuentes, Arturo & Denis, Gabriela, 2017. "A two-step hybrid investment strategy for pension funds," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 574-583.

    More about this item

    Keywords

    Pension funds; Herding; Portfolio choice;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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