Asset Price Effects of Peer Benchmarking : Evidence from a Natural Experiment

This 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.

Bibliographic Details

Main Authors:	Acharya, Sushant, Pedraza, Alvaro
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-04
Subjects:	INDIVIDUAL ACCOUNTS, STOCK PRICES, RISKS, HOLDING, LARGE INSTITUTIONAL INVESTORS, MARKET STRUCTURE, BENCHMARK INDEX, FUND MANAGER, RETURN VOLATILITY, MARKET PORTFOLIO, STOCK, PENSION FUND MANAGERS, FUND MANAGERS, PORTFOLIO HOLDING, INTEREST, INSTITUTIONAL INVESTORS, RATE OF RETURN, TRADING VOLUME, GUARANTEES, ASSET PRICES, PENSION SYSTEMS, EMERGING ECONOMIES, PORTFOLIO CHOICE, EXCHANGE, STOCK MARKET, LIQUIDITY, DOMESTIC MARKET, ASSET, POLITICAL ECONOMY, EQUITY SECURITIES, ARS, PORTFOLIO, BOOK VALUE, EQUITY RETURNS, MUTUAL FUNDS, ASSET MANAGEMENT, BENCHMARKS, MOMENTUM INVESTMENT STRATEGIES, PENSION SYSTEM, STOCK DATA, PENSION REFORMS, DUMMY VARIABLE, RESERVE, ASSET RETURNS, BANKRUPTCY, MONEY MANAGERS, INTERNATIONAL BANK, PENSION, FUND SHARE, INSTRUMENTS, SHORT-TERM RETURN, PRICE DISCOVERY, MARKET PARTICIPANTS, FUND PORTFOLIOS, INVESTMENT BEHAVIOR, PORTFOLIO RETURNS, FUND BEHAVIOR, RESERVE BANK, FINANCIAL STUDIES, MOMENTUM TRADING, PORTFOLIOS, PRICE VOLATILITY, TRADING, DEBT, MARKETS, RETURN, INVESTMENT OPPORTUNITIES, ASSET CLASSES, WINDOW DRESSING, INVESTMENT STRATEGY, PENSION FUNDS, FINANCE, TRANSACTIONS, EQUITY, SP, INVESTORS, MONEY MANAGEMENT, FEDERAL RESERVE, VALUATIONS, VALUE OF ASSETS, SYSTEMIC RISK, FEDERAL RESERVE BANK, VOLATILITY, BEHAVIORAL FINANCE, MARKET CAPITALIZATION, MARKET FAILURES, STOCK RETURN, FUTURE, RETURNS, ABNORMAL RETURNS, MARKET INDEX, FUND INVESTMENT, MUTUAL FUND HERDING, INDIVIDUAL ACCOUNT, CAPITALIZATION, ASSET PRICING, PORTFOLIO ALLOCATION, ASSETS, MARKET, BENCHMARK, ASSET ALLOCATION, INDIVIDUAL SECURITIES, SECURITIES, FEDERAL RESERVE SYSTEM, HOLDINGS, INSURANCE, GOVERNMENT DEBT, PORTFOLIO STRATEGIES, INVESTMENT STRATEGIES, EQUITY MUTUAL FUNDS, INTERESTS, INVESTOR, SECURITY, PRICE PRESSURES, SHORT-TERM MARKET, MUTUAL FUND, STOCKS, STOCK EXCHANGE, INVESTMENT, RISK, SHARE, FINANCIAL MARKETS, BPS, PORTFOLIO HOLDINGS, RISK TAKING, STOCK PRICE, ASSETS UNDER MANAGEMENT, PRICE OF STOCKS, MARKET INTEGRATION, SUPERVISORY AGENCY, PENSION FUND, STOCK RETURNS, INSTRUMENT, MUTUAL FUND BEHAVIOR, REDEMPTION RISKS, ARBITRAGE, INDEX FUNDS, GUARANTEE, ASSET PRICE, DEVELOPMENT BANK, PORTFOLIO MANAGEMENT, INDIVIDUAL STOCKS, REDEMPTION, INVESTING, INVESTMENT DECISION,
Online Access:	http://documents.worldbank.org/curated/en/2015/04/24359081/asset-price-effects-peer-benchmarking-evidence-natural-experiment http://hdl.handle.net/10986/21853
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