The market for lemmings: The herding behavior of pension funds

Using a unique dataset that covers United Kingdom defined-benefit pension fund asset allocations over the past 25 years, we present robust evidence that pension funds display strong herding behavior, and tend to herd in subgroups defined by fund size and sponsor type. We also show that, while pension funds tend to switch from equities to bonds as their liabilities mature, they mechanically rebalance their portfolios in the short term. Finally, we find that their price impact is neither persistent nor stabilizing, and that there are only small cross-sectional differences in returns across pension funds, consistent with their widespread herding behavior.