Acharya, SushantPedraza, Alvaro2015-05-042015-05-042015-04https://hdl.handle.net/10986/21853This paper estimates the effects of peer benchmarking by institutional investors on asset prices. To identify trades purely due to peer benchmarking as separate from those based on fundamentals or private information, the paper exploits a natural experiment involving a change in a government imposed underperformance penalty applicable to Colombian pension funds. This change in regulation is orthogonal to stock fundamentals and only affects incentives to track peer portfolios allowing the authors to identify the component of demand due to peer benchmarking. The authors find that peer effects among pension fund managers generate excess in 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.en-USCC BY 3.0 IGOINDIVIDUAL ACCOUNTSSTOCK PRICESRISKSHOLDINGLARGE INSTITUTIONAL INVESTORSMARKET STRUCTUREBENCHMARK INDEXFUND MANAGERRETURN VOLATILITYMARKET PORTFOLIOSTOCKPENSION FUND MANAGERSFUND MANAGERSPORTFOLIO HOLDINGINTERESTINSTITUTIONAL INVESTORSRATE OF RETURNTRADING VOLUMEGUARANTEESASSET PRICESPENSION SYSTEMSEMERGING ECONOMIESPORTFOLIO CHOICEEXCHANGESTOCK MARKETLIQUIDITYDOMESTIC MARKETASSETPOLITICAL ECONOMYEQUITY SECURITIESARSPORTFOLIOBOOK VALUEEQUITY RETURNSMUTUAL FUNDSASSET MANAGEMENTBENCHMARKSMOMENTUM INVESTMENT STRATEGIESPENSION SYSTEMSTOCK DATAPENSION REFORMSDUMMY VARIABLERESERVEASSET RETURNSBANKRUPTCYMONEY MANAGERSINTERNATIONAL BANKPENSIONFUND SHAREINSTRUMENTSSHORT-TERM RETURNPRICE DISCOVERYMARKET PARTICIPANTSFUND PORTFOLIOSINVESTMENT BEHAVIORPORTFOLIO RETURNSFUND BEHAVIORRESERVE BANKFINANCIAL STUDIESMOMENTUM TRADINGPORTFOLIOSPRICE VOLATILITYTRADINGDEBTMARKETSRETURNINVESTMENT OPPORTUNITIESASSET CLASSESWINDOW DRESSINGINVESTMENT STRATEGYPENSION FUNDSFINANCETRANSACTIONSEQUITYSPINVESTORSMONEY MANAGEMENTFEDERAL RESERVEVALUATIONSVALUE OF ASSETSSYSTEMIC RISKFEDERAL RESERVE BANKVOLATILITYBEHAVIORAL FINANCEMARKET CAPITALIZATIONMARKET FAILURESSTOCK RETURNFUTURERETURNSABNORMAL RETURNSMARKET INDEXFUND INVESTMENTMUTUAL FUND HERDINGINDIVIDUAL ACCOUNTCAPITALIZATIONASSET PRICINGPORTFOLIO ALLOCATIONASSETSMARKETBENCHMARKASSET ALLOCATIONINDIVIDUAL SECURITIESSECURITIESFEDERAL RESERVE SYSTEMHOLDINGSINSURANCEGOVERNMENT DEBTPORTFOLIO STRATEGIESINVESTMENT STRATEGIESEQUITY MUTUAL FUNDSINTERESTSINVESTORSECURITYPRICE PRESSURESSHORT-TERM MARKETMUTUAL FUNDSTOCKSSTOCK EXCHANGEINVESTMENTRISKSHAREFINANCIAL MARKETSBPSPORTFOLIO HOLDINGSRISK TAKINGSTOCK PRICEASSETS UNDER MANAGEMENTPRICE OF STOCKSMARKET INTEGRATIONSUPERVISORY AGENCYPENSION FUNDSTOCK RETURNSINSTRUMENTMUTUAL FUND BEHAVIORREDEMPTION RISKSARBITRAGEINDEX FUNDSGUARANTEEASSET PRICEDEVELOPMENT BANKPORTFOLIO MANAGEMENTINDIVIDUAL STOCKSREDEMPTIONINVESTINGINVESTMENT DECISIONWorking PaperWorld Bank10.1596/1813-9450-7239