How do fund managers invest: self strategy or herding in private pension funds?

Abstract

We use Sias (2004) approach to decompose the correlation among investment strategies followed by pension funds administrators in the Chilean private pension fund system during the periods 1997-2001 and 2002-2005, and find that most of this correlation is explained by herding behavior. That is, fund managers mimicking the investment strategy of other funds. We argue that the obligated minimum guaranteed return that pension funds institutions must fulfill, created the incentive for fund managers to herd.