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Interest Rates and Pension Fund Risk-Taking: New Cross-Country Evidence

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  • Maximilian Konradt

    (Imperial College Business School)

Abstract

This paper studies the impact of low interest rates on pension fund risk-taking. I assemble a new cross-country dataset encompassing portfolio holdings of over 100 large pension funds. The data reveal that pension funds increased their exposure to riskier asset classes, such as equities and alternatives, in the low interest rate period after the global financial crisis. Using an instrumental variables approach, I estimate that pension funds increase their exposure to risky assets when domestic interest rates fall. A 25 basis point decline in interest rates is associated with a 0.51 percentage point increase in pension funds’ share of risky assets. This behavior is most pronounced for mature and underfunded pension funds, facing greater pressure to generate returns.

Suggested Citation

  • Maximilian Konradt, 2023. "Interest Rates and Pension Fund Risk-Taking: New Cross-Country Evidence," IHEID Working Papers 01-2023, Economics Section, The Graduate Institute of International Studies, revised 23 Oct 2025.
    • Handle: RePEc:gii:giihei:heidwp01-2023
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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