Аннотация
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.