Pension Funds' Herding

Dirk Broeders, Damiaan H.J. Chen, Peter A. Minderhoud and C.J. Willem Schudel
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Damiaan H.J. Chen: De Nederlandsche Bank and University of Amsterdam
Peter A. Minderhoud: De Nederlandsche Bank
C.J. Willem Schudel: De Nederlandsche Bank

International Journal of Central Banking, 2021, vol. 17, issue 1, 285-330

Abstract: This paper uses unique and detailed transaction data to analyze herding behavior among pension funds. We distinguish between weak, semi-strong, and strong herding behavior. Weak herding occurs if pension funds have similar rebalancing strategies. Semi-strong herding arises when pension funds react similarly to other external shocks, such as changes in regulation and exceptional monetary policy operations. Finally, strong herding means that pension funds intentionally replicate changes in the strategic asset allocation of other pension funds without an economic reason. We find empirical evidence supporting all three types of herding behavior in the asset allocation of large Dutch pension funds. Whereas weak herding can contribute to financial stability, strong herding may present a risk for financial stability.

JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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