Investment risk taking by institutional investors
AbstractThis 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.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 11-11.
Length: 22 pages
Date of creation: May 2011
Date of revision:
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Web page: http://www.uu.nl/EN/faculties/leg/organisation/schools/schoolofeconomicsuse/Pages/default.aspx
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Other versions of this item:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-04 (All new papers)
- NEP-IAS-2011-06-04 (Insurance Economics)
- NEP-RMG-2011-06-04 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jacob A. Bikker & Peter J.G. Vlaar, 2006. "Conditional Indexation in Defined Benefit Pension Plans," DNB Working Papers 086, Netherlands Central Bank, Research Department.
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