Risk-Taking of Institutional Investors: Evidence from US Defined Benefit Pension Plans
34 Pages Posted: 26 Mar 2010
Date Written: March 15, 2010
Abstract
We study the volatility of US defined benefit pension plans sponsored by private and public companies. We find significant differences in pension plan volatility related to the ownership of the sponsoring firm. The impact of the funded status of pension liabilities on risk-taking for publicly traded sponsors is more than twice as large as for private sponsors, and is driven by the sponsoring firm’s availability of cash. Pension plan returns are explained by both the upside and the downside risk exposures of their asset allocation but equity holdings are rebalanced only after negative excess returns.
Keywords: Pension Pans, Volatility, Defined Benefit, Risk
JEL Classification: G23, G2
Suggested Citation: Suggested Citation
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