Do pension funds reach for yield? Evidence from a new database

Maximilian Konradt

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the financial risk-taking behavior of pension funds since 2000. I assemble a new database containing portfolio holdings of more than 100 pension funds from 14 advanced economies. The study reveals three key findings. First, I show that pension fund portfolios have become riskier over that period, with an average increase in risky asset weights of 4 percentage points since 2008. European pension funds tend to invest more in public equities, while North American and Asian funds focus on alternative assets. Second, I find evidence that declining domestic risk-free rates play a significant role in driving the trend, with pension funds increasing their risky asset exposure in response to falling short-term interest rates. Third, I demonstrate that less underfunded pension funds with fewer risky assets tend to reach for yield more aggressively, which is exacerbated during periods of low risk-free rates. This is most pronounced for European pension funds, particularly after the global financial crisis.

Keywords: Low interest rates; Pension funds; Risk-taking; Reach for yield (search for similar items in EconPapers)
JEL-codes: E43 F21 G11 G23 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-age and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Do pension funds reach for yield? Evidence from a new database (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:116209

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