Does Regulation Matter? Riskiness in Pension Asset Allocation

Sandra Rigot ()
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Sandra Rigot: University Paris North

No 1003259, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: We investigate the influence of investment regulations on the riskiness and procyclcality of defined-benefit (DB) pension funds' asset allocations. We provide a global comparison of the regulatory framework for public, corporate and industry pension funds in the US, Canada and the Netherlands. Derived from panel data analysis of a unique set of close to 600 detailed funds? asset allocations, our results highlight that regulatory factors are vitally important ? more so than the funds? individual and institutional characteristics, in shaping these asset allocations. In particular, risk-based capital requirements, balance sheet recognition of unfunded liabilities, lower liability discount rates, and shorter recovery periods lead pension funds to decrease their asset allocation to risky assets. Risk-based capital requirements reduce overall risky asset allocation by as much as 5%, but they do not affect the asset classes identically. While equities, real estate and mortgages are at a disadvantage, high yield bonds and commodities are slightly favored.

Keywords: Solvency; Pension funds; Defined Benefit; Liability discount rate; Valuation requirements; Financial stability; Regulation (search for similar items in EconPapers)
JEL-codes: G11 G28 (search for similar items in EconPapers)
Pages: 1 page
Date: 2015-05
New Economics Papers: this item is included in nep-age, nep-cba, nep-cfn, nep-pbe and nep-rmg
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Published in Proceedings of the Proceedings of the 15th International Academic Conference, Rome, May 2015, pages 966-966

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:1003259

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