IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Credit Ratings and UK Defined Pension Fund Portfolio Values

  • Martin Sullivan

    ()

    (UWE, Bristol)

Registered author(s):

    The emergence, in recent years, of large financing deficits in the portfolio values of UK DB pension funds, along with changes in the way such funds are valued by actuaries, has led fund managers to increase the weighting of fixed income securities, including corporate bonds, relative to equities in the portfolios they manage. Since bond prices tend to be less volatile than those of equities, greater bond holdings are attractive in the context of an accounting framework which now values funds on the basis of the current market values of the assets they hold and does not permit the smoothing of asset values over time. When selecting the fixed income securities to be held in the portfolios they manage, fund managers will have regard to the credit ratings assigned to corporate bond issuers. Through a consideration of some key credit rating metrics, and a survey of some relevant literature, this paper seeks to shed light on the ways, and the extent to which, the actions of the credit rating agencies may impact upon the values of defined benefit pension fund portfolios. The paper is organized as follows. Section i provides a general introduction to the theory and practice of credit rating and notes the relevance of credit ratings to defined benefit pension funds. Section ii presents a discussion of pension fund portfolios and their asset allocations. Sections iii and iv analyse the significance of credit ratings and the behaviour of rating agencies for defined benefit pension funds. Section v draws some tentative conclusions and offers some suggestions on the direction that future research on this topic might take.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://carecon.org.uk/DPs/0909.pdf
    File Function: First version, 2009
    Download Restriction: no

    Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0909.

    as
    in new window

    Length: 16 pages
    Date of creation: Jul 2009
    Date of revision:
    Handle: RePEc:uwe:wpaper:0909
    Contact details of provider: Postal: 0117 328 3610
    Phone: 0117 328 3610
    Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx

    More information through EDIRC

    References listed on IDEAS
    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.:

    as in new window
    1. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    2. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June.
    3. Fernando Gonzalez & Fran├žois Haas & Ronald Johannes & Mattias Persson & Liliana Toledo & Roberto Violi & Martin Wieland & Carmen Zins, 2004. "Market dynamics associated with credit ratings - a literature review," Occasional Paper Series 16, European Central Bank.
    4. John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," NBER Working Papers 8961, National Bureau of Economic Research, Inc.
    5. Blake, David, 2000. "Does It Matter What Type of Pension Scheme You Have?," Economic Journal, Royal Economic Society, vol. 110(461), pages F46-81, February.
    6. Jeffery D Amato & Eli M Remolona, 2003. "The credit spread puzzle," BIS Quarterly Review, Bank for International Settlements, December.
    7. Caton, Gary L & Goh, Jeremy, 2003. " Are All Rivals Affected Equally by Bond Rating Downgrades?," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 49-62, January.
    8. ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:uwe:wpaper:0909. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Felix Ritchie)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.