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Asset price effects of peer benchmarking: Evidence from a natural experiment

Alvaro Pedraza () and Fredy Pulga ()

International Review of Economics & Finance, 2019, vol. 62, issue C, 53-65

Abstract: We estimate the effects of peer benchmarking by institutional investors on asset prices. In order to isolate the trades driven by peer benchmarking, we use a natural experiment involving a change in a government-imposed under-performance penalty applicable to Colombian pension funds. We find that peer effects generate excess 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.

Keywords: Herding; Institutional investors; Asset prices; Comovement (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Asset price effects of peer benchmarking: evidence from a natural experiment (2015) Downloads
Working Paper: Asset price effects of peer benchmarking: evidence from a natural experiment (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:62:y:2019:i:c:p:53-65

DOI: 10.1016/j.iref.2019.02.012

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