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The Impact of New Capital Requirements on the Portfolio Decisions of Finnish Pension Institutions

Author

Listed:
  • Sjöholm, Hans-Kristian

    (Swedish School of Economics and Business Administration)

Abstract

This paper examines the potential impact of new capital requirements on asset allocations of Finnish pension institutions. We describe the new requirements and consider portfolio construction to minimize regulatory capital, given the investor’s preferred level of expected return. Results identify portfolio transactions that enhance expected return without increasing capital needs. Regulation calls for portfolio diversification and prudence in management, but this paper shows that market participants can exploit inconsistencies in regulation. Possible future consequences include capital outflows from the pension system and an unintended decrease in pre-funding of old-age pensions.

Suggested Citation

  • Sjöholm, Hans-Kristian, 2007. "The Impact of New Capital Requirements on the Portfolio Decisions of Finnish Pension Institutions," Working Papers 532, Hanken School of Economics.
    • Handle: RePEc:hhb:hanken:0532
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    File URL: http://openax.shh.fi:8180/dspace/bitstream/10227/257/1/532-978-951-555-968-5.pdf
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    References listed on IDEAS

    as
    1. Böckerman, Petri & Johansson, Edvard & Jousilahti, Pekka & Uutela, Antti, 2007. "The Physical Strenuousness of Work is Slightly Associated with an Upward Trend in the Body Mass Index," Working Papers 523, Hanken School of Economics.
    2. Johansson, Edvard & Böckerman, Petri & Kiiskinen, Urpo & Heliövaara, Markku, 2007. "The Effect of Obesity on Wages and Employment: The Difference Between Having a High BMI and Being Fat," Working Papers 528, Hanken School of Economics.
    3. Rokkanen, Nikolas, 2007. "With Good Reputation Size Does not Matter: Issue Frequency and the Determinants of Debt Maturity," Working Papers 522, Hanken School of Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    finnish pension system; solvency; portfolio; optimization; regulatory; arbitrage;
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