Strategic Interactions and Portfolio Choice in Money Management : Evidence from Colombian Pension Funds

This paper studies the portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. Evidence is taken from the Colombian pension fund management industry, where six asset managers are in charge of portfolio allocation for the mandatory contributions of the working population. These managers are subject to a peer-based underperformance penalty, known as the Minimum Return Guarantee. The trading behavior by the managers is studied before and after a change in the strictness of the guarantee in June 2007. The evidence suggests that a tighter minimum return guarantee results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. These managers rebalance their portfolios by buying securities in which they are underexposed relative to their peers, as opposed to selling assets in which they are overexposed. Overall, the results suggest that incentives for managers to be close to industry benchmarks play an important role in the portfolio allocation of these funds.

Bibliographic Details

Main Author:	Pedraza Morales, Alvaro
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-07
Subjects:	ACCOUNTING, AGGREGATE FUND, ASSET ALLOCATION, ASSET CLASSES, ASSET MANAGEMENT, ASSET MANAGEMENT INDUSTRY, ASSET MANAGERS, ASSET PRICE, ASSET PRICING, ASSETS UNDER MANAGEMENT, BANKRUPTCY, BEHAVIOR OF MANAGERS, BENCHMARKS, BPS, CAPTIVE MARKET, CEO, CONFIDENCE INTERVAL, CONFIDENCE INTERVALS, DEVELOPMENT BANK, DOMESTIC CAPITAL, DOMESTIC CAPITAL MARKET, DOMESTIC CORPORATE DEBT, DOMESTIC MARKET, DOMESTIC STOCK, DOMESTIC STOCKS, DUMMY VARIABLE, EQUITY MUTUAL FUNDS, EQUITY SECURITIES, EXCESS PERFORMANCE, EXPOSURE, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL MARKETS, FINANCIAL PERFORMANCE, FINANCIAL SERVICES, FINANCIAL STUDIES, FLOWS, FUND FAMILIES, FUND HOLDINGS, FUND MANAGEMENT, FUND MANAGER, FUND MANAGERS, FUND SHARE, GOVERNMENT DEBT, HEDGE FUND, HEDGE FUND INDUSTRY, HEDGE FUNDS, HOLDING, INDIVIDUAL ACCOUNTS, INDIVIDUAL FUND, INDIVIDUAL FUND RETURNS, INDIVIDUAL RETIREMENT, INDIVIDUAL RETIREMENT ACCOUNTS, INDIVIDUAL SECURITIES, INDIVIDUAL STOCK, INDIVIDUAL STOCKS, INSTITUTIONAL INVESTORS, INTERNATIONAL BANK, INVESTMENT BEHAVIOR, INVESTMENT DECISION, INVESTMENT STRATEGIES, INVESTMENT STRATEGY, LIQUIDITY, MARKET BENCHMARK, MARKET CAPITALIZATION, MARKET INDEX, MARKET PORTFOLIO, MARKET RETURNS, MOMENTUM INVESTMENT STRATEGIES, MOMENTUM STRATEGIES, MOMENTUM TRADING, MONEY MANAGEMENT, MONEY MANAGERS, MUTUAL FUND, MUTUAL FUND BEHAVIOR, MUTUAL FUND HERDING, MUTUAL FUND INDUSTRY, MUTUAL FUND MANAGERS, MUTUAL FUND PERFORMANCE, MUTUAL FUNDS, MUTUAL-FUND, MUTUAL-FUND FAMILIES, NUMBER OF SHARES, OPTIMAL PORTFOLIO, OVERALL PORTFOLIO, PASSIVE PORTFOLIO, PENSION, PENSION FUND, PENSION FUND INVESTMENT, PENSION FUND MANAGERS, PENSION FUNDS, PENSION SYSTEM, PENSION SYSTEMS, PENSIONS, PERFORMANCE FEES, POLITICAL ECONOMY, PORTFOLIO, PORTFOLIO ALLOCATION, PORTFOLIO CHANGE, PORTFOLIO CHOICE, PORTFOLIO CHOICES, PORTFOLIO COMPOSITION, PORTFOLIO HOLDING, PORTFOLIO HOLDINGS, PORTFOLIO MANAGEMENT, PORTFOLIO MANAGERS, PORTFOLIO OF FUND, PORTFOLIO PERFORMANCE, PORTFOLIO RETURNS, PORTFOLIO STRATEGIES, PORTFOLIO WEIGHT, PORTFOLIO WEIGHTS, PORTFOLIOS, PRICE CHANGES, PRIVATE PENSION, PRIVATE SECTOR DEVELOPMENT, PROFESSIONAL INVESTORS, PURCHASING, RATE OF RETURN, REGULATORY CONSTRAINTS, RETIREMENT SAVINGS, RETURN, RETURNS, RISK TAKING, S&P, SALES, SAVINGS, SECURITIES, SHARE OF ASSETS, SHARE OF STOCK, SHORT SELLING, SMALL FUND, STOCK CHARACTERISTICS, STOCK INDEX, STOCK MARKET, STOCK OWNERSHIP, STOCK PRICE, STOCK PRICES, STOCK RETURNS, STOCK SPLITS, STOCK TRADES, STOCK WEIGHTS, STOCKS, SUCCESS FEES, TIME DUMMY, TRADING, TRADING ACTIVITY, TRADING VOLUME, VALUE OF ASSETS, WINDOW DRESSING,
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19902944/strategic-interactions-portfolio-choice-money-management-evidence-colombian-pension-funds http://hdl.handle.net/10986/19382
Tags:	Add Tag No Tags, Be the first to tag this record!