Home Bias and Dutch Pension Funds’ Investment Behaviour

Abstract

This study presents the empirical evidence on the evolution of home bias in Dutch pension funds (PFs) asset allocation behaviour. Using a panel data of more than 600 Dutch PFs over the period 1992-2006, we observe a significantly diminishing home bias from 37% to 13% in portfolio choice decisions of Dutch institutional investors. This abridge in home bias is significantly swayed by their individual characteristics, the introduction of the euro and dot-com crisis (2000-2001). Overall international portfolio diversification is conspicuous in mature PFs; whereas, large PFs seem preferring only to scale up their foreign less-risky positions at the expense of domestic fixed incomes. The effect of the dot-com financial turmoil is more pronounced on domestic bonds while introduction of the euro influences more to the domestic equities. We find liability structure driving more-risky positions across the markets in lower-sized Dutch PFs.

Keywords: Pension funds, Portfolio choice, Home bias

JEL Classification: G11, G23