March 2021 issue contents
Pension Funds' Herding

Dirk W.G.A. Broeders,ab Damiaan H.J. Chen,ac Peter A. Minderhoud,a and C.J. Willem Schudela


This paper uses unique and detailed transaction data to analyze herding behavior among pension funds. We distinguish between weak, semi-strong, and strong herding behavior. Weak herding occurs if pension funds have similar rebalancing strategies. Semi-strong herding arises when pension funds react similarly to other external shocks, such as changes in regulation and exceptional monetary policy operations. Finally, strong herding means that pension funds intentionally replicate changes in the strategic asset allocation of other pension funds without an economic reason. We find empirical evidence supporting all three types of herding behavior in the asset allocation of large Dutch pension funds. Whereas weak herding can contribute to financial stability, strong herding may present a risk for financial stability.

JEL Code: G11, G23.

Full article (PDF, 46 pages, 606 kb)

a De Nederlandsche Bank

b Maastricht University

c University of Amsterdam