Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278328 
Year of Publication: 
2023
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP01-2023
Publisher: 
Graduate Institute of International and Development Studies, Geneva
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.
Subjects: 
Low interest rates
Pension funds
Risk-taking
Reach for yield
JEL: 
E43
F21
G11
G23
Document Type: 
Working Paper

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