Investment risk taking by institutional investors

Janko Gorter () and Jacob Bikker ()

No 11-11, Working Papers from Utrecht School of Economics

Abstract: This paper is the first that formally compares investment risk taking by pension funds and insurance firms. Using a unique and extended dataset that covers the volatile investment period 1995-2009, we find that, in the Netherlands, insurers take substantially less investment risk than pension funds, even though a market risk capital charge for insurers is yet absent. This result can be explained from financial distress costs, which only insurers face. We also find that institutional investors’ risk taking is determined by their risk bearing capacity, where this risk bearing capacity depends on capital, size, reinsurance, underwriting risk and human and financial wealth per pension plan participant. Finally, and in line with the ownership structure hypothesis, stock insurers are found to take significantly more investment risk than mutual insurers.

Keywords: Portfolio Choice; Insurance Companies; Pension Funds; Ownership Structure (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ias and nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: Investment risk taking by institutional investors (2013)
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