Interest Rates and Pension Fund Risk-Taking: New Cross-Country Evidence

Maximilian Konradt ()

No 01-2023, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper studies the impact of low interest rates on pension fund risk-taking. I assemble a new cross-country dataset encompassing portfolio holdings of over 100 large pension funds. The data reveal that pension funds increased their exposure to riskier asset classes, such as equities and alternatives, in the low interest rate period after the global financial crisis. Using an instrumental variables approach, I estimate that pension funds increase their exposure to risky assets when domestic interest rates fall. A 25 basis point decline in interest rates is associated with a 0.51 percentage point increase in pension funds’ share of risky assets. This behavior is most pronounced for mature and underfunded pension funds, facing greater pressure to generate returns.

Keywords: Low interest rates; pension funds; risk-taking; alternative investments (search for similar items in EconPapers)
JEL-codes: E43 F21 G11 G23 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-02-01, Revised 2025-10-23
New Economics Papers: this item is included in nep-age, nep-eec, nep-fdg, nep-ifn, nep-rmg and nep-sea
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Related works:
Working Paper: Interest Rates and Pension Fund Risk-Taking: New Cross-Country Evidence (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp01-2023

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