Journal of Financial Services Research

, Volume 43, Issue 1, pp 99-126

First online:

Deconstructing Herding: Evidence from Pension Fund Investment Behavior

  • Claudio RaddatzAffiliated withBanco Central de Chile
  • , Sergio L. SchmuklerAffiliated withWorld Bank Email author 

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In this paper, we examine herding across asset classes and industry levels. We also study what incentives managers at various layers of the financial industry face when investing. To do so, we use unique and detailed monthly portfolios between 1996 and 2005 from pension funds in Chile, a pioneer in pension-fund reform. The results show that pension funds herd more in assets that have more risk and for which pension funds have less market information. Furthermore, the results show that herding is more prevalent for funds that narrowly compete with each other, namely, when comparing funds of the same type across pension fund administrators (PFAs). There is much less herding across PFAs as a whole and in individual pension funds within PFAs. These herding patterns are consistent with incentives for managers to be close to industry benchmarks, and might be also driven by market forces and partly by regulation.


Institutional investors Portfolio allocation Investment patterns Capital market development

JEL Classification

G11 G12 G23 G28 O16