Coordinated Noise Trading: Evidence from Pension Fund Reallocations

Zhi Da, Borja Larrain, Clemens Sialm, José Tessada

NBER Working Paper No. 22161
Issued in April 2016
NBER Program(s):AG, AP, CF, IFM, ITI, PE

We document a novel channel through which coordinated noise trading exerts externalities on financial markets dominated by institutional investors. We exploit a unique set of events where Chilean pension fund investors followed an influential financial advisory firm that recommended frequent switches between equity and bond funds. The recommendations, which mostly followed short-term trends, generated large and coordinated fund flows. These flows resulted in substantial price pressure and increased volatility in financial markets. Pension funds increased cash holdings as a response. Our findings suggest that giving retirement savers unconstrained reallocation opportunities may exert negative externalities on financial markets.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22161

Users who downloaded this paper also downloaded* these:
Burchardi and Hassan w17186 The Economic Impact of Social Ties: Evidence from German Reunification
Calomiris and Gorton The Origins of Banking Panics: Models, Facts, and Bank Regulation
Morck and Tian w21707 Business Groups in Canada: Their Rise and Fall, and Rise and Fall Again
Jermann w21977 Financial Markets’ Views about the Euro-Swiss Franc Floor
Backus, Boyarchenko, and Chernov w22162 Term Structures of Asset Prices and Returns
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us