Asymmetric Shocks and Pension Fund Volatility: A GARCH Approach with Macroeconomic Predictors to an Unexplored Emerging Market

Financial stability analysis requires volatility modeling, especially in emerging nations where pension fund systems are very vulnerable to macrofinancial risks. In order to examine the volatility dynamics of Romania’s private pension system, this study uses daily net asset value (NAV) data from 2012 to 2024 to evaluate four GARCH-type models: standard GARCH (sGARCH), exponential GARCH (EGARCH), Glosten–Jagannathan–Runkle GARCH (GJR-GARCH), and component GARCH (C-GARCH). The analysis includes domestic and international equity indices (BET, STOXX), government bond yields (ROMGB 10Y, ROMANI 5Y), short-term interbank rates (ROBOR ON), and exchange rate fluctuations (RON/EUR). Current findings indicate that EGARCH captures asymmetric fluctuations in pension fund performance, where positive shocks generate larger increases in volatility than negative ones, highlighting an atypical asymmetry pattern. Furthermore, the stabilizing effects of government bonds are overshadowed by stock market behavior, which becomes the primary driver of risk. Fluctuations in exchange rates further increase volatility, especially in markets vulnerable to external disturbances. The findings offer empirical evidence for the necessity of more cautious risk management approaches and highlight the importance of regulatory oversight in maintaining market confidence. The study underscores the importance of customized allocation frameworks that reduce vulnerability to disruptive events while maintaining prospects for sustained growth. This new dataset contributes to enhancing the comprehension of pension fund volatility within the context of emerging markets. These insights can assist managers and policymakers seeking to fortify retirement outcomes.