IDEAS home Printed from https://ideas.repec.org/a/ibn/ijbmjn/v13y2018i2p1.html
   My bibliography  Save this article

Italian Pension Funds Struggling with Domestic Sovereign Risk

Author

Listed:
  • Paola De Vincentiis
  • Eleonora Isaia
  • Paola Zocchi

Abstract

The paper investigates the determinants of Italian pension funds’ exposure to the domestic sovereign bonds through a panel analysis, over the time-period 2008-2014, on a sample of 70 funds and 230 investment lines. We investigate the drivers on sovereign home bias along two main explicative arrows- the familiarity theory, and the opportunity set theory. Results indicate that both factors are significant. However, from a quantitative point of view, the main determinant is the presence of restrictions in the investment mandate. The existence of a minimum guaranteed return increases on average by 11 per cent the weight of the Italian sovereign bonds on the European sovereign portfolio, while extending the investment spectrum outside Europe determines a decrease of 4.5 per cent on average. This finding suggests that exposures to the domestic-sovereign risk of Italian pension funds would probably reduce after specific mandate restrictions have loosened. Since sovereign home bias translates into concentration risk, it may weaken the soundness of the private pension pillar in case the Italian T-bonds suffer from a significant price reduction. Regulators should pay close attention to this issue to enhance the stability of the Italian pension fund industry, considering that such a large sovereign home bias could simultaneously undermine the private and public pension payments.

Suggested Citation

  • Paola De Vincentiis & Eleonora Isaia & Paola Zocchi, 2018. "Italian Pension Funds Struggling with Domestic Sovereign Risk," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(2), pages 1-1, January.
    • Handle: RePEc:ibn:ijbmjn:v:13:y:2018:i:2:p:1
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/download/71981/40038
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/view/71981
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    2. Varas, Felipe & Walker, Eduardo, 2011. "Optimal close-to-home biases in asset allocation," Journal of Business Research, Elsevier, vol. 64(3), pages 328-337, March.
    3. Bijlsma, Melle & Vermeulen, Robert, 2016. "Insurance companies’ trading behaviour during the European sovereign debt crisis: Flight home or flight to quality?," Journal of Financial Stability, Elsevier, vol. 27(C), pages 137-154.
    4. Tiago C. Berriel & Saroj Bhattarai, 2013. "Hedging against the Government: A Solution to the Home Asset Bias Puzzle," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 102-134, January.
    5. Ni, Jinlan, 2009. "The effects of portfolio size on international equity home bias puzzle," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 469-478, June.
    6. McQueen, Grant & Stenkrona, Anders, 2012. "The home-institution bias," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1627-1638.
    7. Bijlsma, Melle & Vermeulen, Robert, 2016. "Insurance companies’ trading behaviour during the European sovereign debt crisis: Flight home or flight to quality?," Journal of Financial Stability, Elsevier, vol. 27(C), pages 137-154.
    8. Veronika K. Pool & Noah Stoffman & Scott E. Yonker, 2012. "No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2563-2599.
    9. Niccolò Battistini & Marco Pagano & Saverio Simonelli, 2013. "Systemic Risk and Home Bias in the Euro Area," European Economy - Economic Papers 2008 - 2015 494, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eduard Gaar & David Scherer & Dirk Schiereck, 2022. "The home bias and the local bias: A survey," Management Review Quarterly, Springer, vol. 72(1), pages 21-57, February.
    2. Mishra, Anil V., 2016. "Foreign bias in Australian-domiciled mutual fund holdings," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 101-123.
    3. Annika Westphal, 2015. "Systemic Risk in the European Union: A Network Approach to Banks’ Sovereign Debt Exposures," IJFS, MDPI, vol. 3(3), pages 1-36, July.
    4. Coeurdacier, Nicolas & Gourinchas, Pierre-Olivier, 2016. "When bonds matter: Home bias in goods and assets," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 119-137.
    5. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
    6. I. Koetsier & J.A. Bikker, 2017. "Herding behaviour of Dutch pension funds in sovereign bond investments," Working Papers 17-15, Utrecht School of Economics.
    7. Tobias Broer, 2008. "The home bias of the poor: terms of trade effects and portfolios across the wealth distribution," Economics Working Papers ECO2008/28, European University Institute.
    8. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g81p7j6b6 is not listed on IDEAS
    9. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g821o6lsg is not listed on IDEAS
    10. Jonathan Batten & Xuan Vinh Vo, 2010. "The determinates of equity portfolio holdings," Applied Financial Economics, Taylor & Francis Journals, vol. 20(14), pages 1125-1132.
    11. Zhang, Ning, 2019. "Country portfolios under global imbalances," European Economic Review, Elsevier, vol. 119(C), pages 302-317.
    12. Li, Xuan, 2023. "Home bias in shareholder voting," Discussion Papers 2023/21, Norwegian School of Economics, Department of Business and Management Science.
    13. Martijn A. Boermans & Robert Vermeulen, 2020. "International investment positions revisited: Investor heterogeneity and individual security characteristics," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 466-496, May.
    14. Ammann, Manuel & Cochardt, Alexander Elmar & Straumann, Simon & Weigert, Florian, 2022. "Back to the roots: Ancestral origin and mutual fund manager portfolio choice," CFR Working Papers 22-04, University of Cologne, Centre for Financial Research (CFR).
    15. repec:hal:spmain:info:hdl:2441/5glg8brs7n87c8vqcn2qok0961 is not listed on IDEAS
    16. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    17. Nathan Mauck & S. McKay Price, 2017. "Determinants of Foreign Versus Domestic Real Estate Investment: Property Level Evidence from Listed Real Estate Investment Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 54(1), pages 17-57, January.
    18. Valerio Della Corte & Stefano Federico, 2019. "Two tales of foreign investor outflows: Italy in 2011-2012 and 2018," Questioni di Economia e Finanza (Occasional Papers) 535, Bank of Italy, Economic Research and International Relations Area.
    19. Düll, Robert & König, Felix & Ohls, Jana, 2017. "On the exposure of insurance companies to sovereign risk—Portfolio investments and market forces," Journal of Financial Stability, Elsevier, vol. 31(C), pages 93-106.
    20. Mishra, Anil V., 2017. "Foreign bias in Australia's international equity holdings," Review of Financial Economics, Elsevier, vol. 33(C), pages 41-54.
    21. repec:hal:spmain:info:hdl:2441/5djvq5crl99rmab9vc66fecm3h is not listed on IDEAS
    22. Jess N. Cornaggia & Kimberly J. Cornaggia & Ryan D. Israelsen, 2020. "Where the Heart Is: Information Production and the Home Bias," Management Science, INFORMS, vol. 66(12), pages 5532-5557, December.
    23. Hiraki, Takato & Liu, Ming, 2021. "Do global equity mutual funds exhibit home bias?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    24. repec:hal:spmain:info:hdl:2441/1shj1p7td8e0r5c9fcsnk8a91 is not listed on IDEAS
    25. Haim Levy, 2017. "What is the Economic Cost of the Investment Home Bias?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(5), pages 897-929, August.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ijbmjn:v:13:y:2018:i:2:p:1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.