Raddatz, ClaudioSchmukler, Sergio L.2012-03-192012-03-192011-06-01https://hdl.handle.net/10986/3464Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios professionally. However, by analyzing unique, monthly asset-level data from the pioneer case of Chile, this paper shows that pension funds tend to herd. This is consistent with pension funds copying each other in their investment strategies as a way to extract information, boost returns, and reduce risk. The authors compute measures of herding across asset classes (equities, government bonds, and private sector bonds) and at different pension fund industry levels. The results show that pension funds herd more in assets for which they have less market information and when risk increases. Moreover, herding is more prevalent across funds that narrowly compete with each other, that is, when comparing funds of the same type across pension fund administrators. There is much less herding within pension fund administrators and across pension fund administrators as a whole. This herding pattern is consistent with incentives for managers to be close to industry benchmarks, which might be driven by both market forces and regulation.CC BY 3.0 IGOACCOUNTINGACTIVE ASSETSALTERNATIVE INVESTMENTARBITRAGEASSET ALLOCATIONASSET CHARACTERISTICSASSET CLASSASSET CLASSESASSET MANAGEMENTASSET MANAGERSASSET TYPEASSETS UNDER MANAGEMENTASYMMETRIC INFORMATIONBANK POLICYBENCHMARKBENCHMARK YIELDBENCHMARK YIELD CURVEBENCHMARKSBIDBONDBOND AUCTIONSBOND FUNDSBOND RATINGSCAPITAL FLOWSCAPITAL MARKETCAPITAL MARKET ACTIVITYCAPITAL MARKET DEVELOPMENTCAPITAL MARKET REFORMSCAPITAL RAISINGCAPITALIZATIONCENTRAL BANKCONFLICTS OF INTERESTCONTRACTUAL SAVINGSCONTRACTUAL SAVINGS INSTITUTIONSCORPORATE BONDCORPORATE BOND ISSUERSCORPORATE BONDSCORPORATE GOVERNANCECORPORATE INVESTMENTCOUPONSDEBTDEBT MARKETSDEBTORDEPOSITSDERIVATIVESDEVELOPING COUNTRIESDOMESTIC CAPITALDOMESTIC CAPITAL MARKETSDOMESTIC EQUITIESDOMESTIC EQUITYEMERGING MARKETEMERGING MARKET DEBTEMERGING MARKETSEMERGING STOCK MARKETEQUITIESEQUITY HOLDINGSEQUITY MARKETEQUITY MARKET CAPITALIZATIONEQUITY MARKETSEQUITY MUTUAL FUNDSEQUITY PORTFOLIOFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL MANAGEMENTFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL STUDIESFINANCIAL SUPPORTFINANCIAL SYSTEMSFIXED INCOMEFIXED INCOME ASSETSFIXED INCOME MARKETSFIXED INCOME SECURITIESFLOW OF FUNDSFOREIGN ASSETSFOREIGN INVESTMENTFOREIGN INVESTMENTSFOREIGN MUTUAL FUNDSFUND INDUSTRYFUND MANAGEMENTFUND MANAGERSFUND PORTFOLIOSFUND TYPEFUND TYPESGLOBALIZATIONGOVERNMENT BONDGOVERNMENT BONDSGOVERNMENT PAPERGROUPS OF FUNDSINCOME INSTRUMENTSINDIVIDUAL ACCOUNTINDIVIDUAL ACCOUNTSINDIVIDUAL INVESTMENTSINDIVIDUAL INVESTORSINSTITUTIONAL INVESTORINSTITUTIONAL INVESTORSINSTRUMENTINSURANCEINSURANCE COMPANIESINTERMEDIATE MATURITIESINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINTERNATIONAL ECONOMICSINVESTABLE ASSETSINVESTINGINVESTMENT BEHAVIORINVESTMENT DECISIONINVESTMENT DECISIONSINVESTMENT FUNDSINVESTMENT INSTRUMENTSINVESTMENT PATTERNINVESTMENT PATTERNSINVESTMENT REGULATIONSINVESTMENT RESTRICTIONSINVESTMENT STRATEGIESINVESTMENT STRATEGYINVESTMENT VEHICLESINVESTOR BASEISSUANCEISSUANCESLEVEL OF RISKLIFE INSURANCELIFE INSURANCE COMPANIESLIQUIDITYMACROECONOMIC POLICIESMANAGEMENT COMPANIESMARKET DEPTHMARKET EVIDENCEMARKET INFORMATIONMARKET LIQUIDITYMARKET PARTICIPANTSMARKET PRICESMARKET TRANSPARENCYMARKET VALUEMARKET VOLATILITYMATURITIESMATURITYMATURITY DATEMOMENTUM STRATEGIESMOMENTUM TRADERMOMENTUM TRADINGMORTGAGEMORTGAGE BONDMORTGAGE BONDSMORTGAGE-BACKED SECURITIESMUTUAL FUNDMUTUAL FUND MANAGERSMUTUAL FUND STRATEGIESMUTUAL FUNDSOPPORTUNITY COSTOUTSTANDING CORPORATE BONDSOVERALL PORTFOLIOPAST PERFORMANCEPENSIONPENSION FUNDPENSION FUND INVESTMENTPENSION FUND MANAGERSPENSION FUNDSPENSION REFORMPENSION REFORMSPENSION SYSTEMPENSIONSPOLITICAL ECONOMYPORTFOLIOPORTFOLIO ALLOCATIONPORTFOLIO ALLOCATIONSPORTFOLIO COMPOSITIONSPORTFOLIO HOLDINGPORTFOLIO INVESTMENTSPORTFOLIO PERFORMANCEPORTFOLIOSPRICE FORMATIONPRIMARY MARKETSPUBLIC OFFERINGSPUBLIC SAVINGSPUBLIC SECTOR BONDSRATE OF RETURNREAL RATE OF RETURNREGULATORY CONSTRAINTSREGULATORY FRAMEWORKRESERVERESERVESRETAIL INVESTORSRETIREMENT INCOME SECURITYRETURNRETURN VOLATILITYRETURNSRISK PARAMETERSRISK PROFILESSECONDARY MARKETSSECURITIESSECURITIES MARKETSSET OF FUNDSSINGLE PORTFOLIOSOPHISTICATED INVESTORSSTOCK EXCHANGESTOCK MARKETSTOCK MARKET DEVELOPMENTSTOCK MARKET INDEXSTOCK MARKET LIQUIDITYSTOCKSTRADINGTRADING DAYSTRANSACTIONTRANSACTION COSTSTRANSFER RISKTRANSPARENCYTURNOVERTURNOVER RATIOTURNOVER RATIOSTYPES OF FUNDSUNDERLYING ASSETSWorld Bank10.1596/1813-9450-5700