This paper studies the portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. Evidence is taken from the Colombian pension fund management industry, where six asset managers are in charge of portfolio allocation for the mandatory contributions of the working population. These managers are subject to a peer-based underperformance penalty, known as the Minimum Return Guarantee. The trading behavior by the managers is studied before and after a change in the strictness of the guarantee in June 2007. The evidence suggests that a tighter minimum return guarantee results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. These managers rebalance their portfolios by buying securities in which they are underexposed relative to their peers, as opposed to selling assets in which they are overexposed. Overall, the results suggest that incentives for managers to be close to industry benchmarks play an important role in the portfolio allocation of these funds.
Detalhes
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Autor
Morales, Alvaro Pedraza
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Data do documento
2014/07/01
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TIpo de documento
Documento de trabalho sobre pesquisa de políticas
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No. do relatório
WPS6994
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Nº do volume
1
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Total Volume(s)
1
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País
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Região
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Data de divulgação
2014/07/01
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Disclosure Status
Disclosed
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Nome do documento
Strategic interactions and portfolio choice in money management : evidence from Colombian pension funds
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Palavras-chave
Finance & Private Sector Development;supervision of pension fund;relative performance;international social security;number of shares;portfolio weight;dispersion of return;share of asset;change in behavior;terms of performance;domestic capital market;individual retirement account;excessive risk taking;risk taking behavior;strategic behavior;types of asset;institutional asset manager;domestic corporate debt;optimal asset allocation;share of stock;direction of trade;forms of compensation;cumulative distribution function;
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