The Market for Lemmings: The Herding Behavior of Pension Funds

Abstract

Using a unique dataset that covers UK defined-benefit pension fund asset allocations over the past 25 years, we study the investment behavior of pensions funds. The results suggest that pension funds display strong herding behavior, and tend to herd in subgroups, moving in and out of different asset classes following funds of similar size and sponsor type. Moreover, they systemically switch from equities to bonds as their liabilities mature, and mechanically rebalance their portfolios in the short term.

Keywords: Institutional investors; pension funds; herding; portfolio rebalancing.

JEL Classification: G23