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...

It is commonly believed that stock prices help firms'managers make more efficient real investment decisions, because they aggregate information about fundamentals that is not otherwise known to managers. This paper identifies a limitation to this view. It shows that if informed traders...