Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence

I study portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. While the penalty generates herding behavior, correlated trading among managers is exacerbated when a strategic setting is considered. The equilibrium portfolios are driven by the least rest...

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Main Author:	Pedraza, Alvaro
Format:	Journal Article
Language:	en_US
Published:	Wiley 2017
Subjects:	PORTFOLIO CHOICE STRATEGIC INTERACTIONS RELATIVE PERFORMANCE INSTITUTIONAL INVESTORS PENSION FUNDS
Online Access:	http://hdl.handle.net/10986/26576

id	okr-10986-26576
recordtype	oai_dc
spelling	okr-10986-265762021-04-23T14:04:36Z Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence Pedraza, Alvaro PORTFOLIO CHOICE STRATEGIC INTERACTIONS RELATIVE PERFORMANCE INSTITUTIONAL INVESTORS PENSION FUNDS I study portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. While the penalty generates herding behavior, correlated trading among managers is exacerbated when a strategic setting is considered. The equilibrium portfolios are driven by the least restricted manager, who may vary according to the realization of returns. I compare model predictions to evidence 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, which is known as the minimum return guarantee (MRG). I study trading behavior by managers before and after a change in the strictness of the MRG in June 2007. The evidence suggests that a tighter MRG results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. I show that these findings are consistent with the qualitative and quantitative predictions of the theoretical model. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions. http://olabout.wiley.com/WileyCDA/Section/id-820227.html 2017-05-11T20:29:15Z 2017-05-11T20:29:15Z 2015-12 Journal Article Journal of Money, Credit and Banking http://hdl.handle.net/10986/26576 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Wiley Publications & Research :: Journal Article Publications & Research Latin America & Caribbean Colombia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	PORTFOLIO CHOICE STRATEGIC INTERACTIONS RELATIVE PERFORMANCE INSTITUTIONAL INVESTORS PENSION FUNDS
spellingShingle	PORTFOLIO CHOICE STRATEGIC INTERACTIONS RELATIVE PERFORMANCE INSTITUTIONAL INVESTORS PENSION FUNDS Pedraza, Alvaro Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
geographic_facet	Latin America & Caribbean Colombia
description	I study portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. While the penalty generates herding behavior, correlated trading among managers is exacerbated when a strategic setting is considered. The equilibrium portfolios are driven by the least restricted manager, who may vary according to the realization of returns. I compare model predictions to evidence 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, which is known as the minimum return guarantee (MRG). I study trading behavior by managers before and after a change in the strictness of the MRG in June 2007. The evidence suggests that a tighter MRG results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. I show that these findings are consistent with the qualitative and quantitative predictions of the theoretical model. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions. http://olabout.wiley.com/WileyCDA/Section/id-820227.html
format	Journal Article
author	Pedraza, Alvaro
author_facet	Pedraza, Alvaro
author_sort	Pedraza, Alvaro
title	Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
title_short	Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
title_full	Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
title_fullStr	Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
title_full_unstemmed	Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence
title_sort	strategic interactions and portfolio choice in money management : theory and evidence
publisher	Wiley
publishDate	2017
url	http://hdl.handle.net/10986/26576
_version_	1764462296423202816

Strategic Interactions and Portfolio Choice in Money Management : Theory and Evidence

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