The market for lemmings: The herding behavior of pension funds

Sarno, L., Blake, D. & Zinna, G. (2017). The market for lemmings: The herding behavior of pension funds. Journal of Financial Markets, doi: 10.1016/j.finmar.2017.03.001

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Using a unique dataset that covers UK defined-benefit pension fund asset allocations over the past 25 years, we provide robust evidence that pension funds display strong herding behavior, and tend to herd in subgroups defined by fund size and sponsor type. We also show that, while pension funds tend to switch from equities to bonds as their liabilities mature, they mechanically rebalance their portfolios in the short term. Finally, we find that their price impact is neither persistent nor stabilizing, and that there are only small cross-sectional differences in returns across pension funds, consistent with their widespread herding behavior.

Item Type: Article
Uncontrolled Keywords: Institutional investors; pension funds; herding; portfolio rebalancing
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance

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