Document Type

Article

Publication Date

3-2014

Publication Source

Journal of Banking & Finance

Abstract

This paper presents the first comprehensive study on the determinants of public pension fund investment risk and reports several new important findings. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing fiscal constraints allocate more assets to equity and have higher betas. There also appears to be a herding effect in that CalPERS equity allocation or beta is mimicked by other pension funds. Finally, our results suggest that government accounting standards strongly affect pension fund risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and portfolio beta.

Inclusive pages

403–419

ISBN/ISSN

0378-4266

Document Version

Postprint

Comments

The document available for download is the authors' accepted manuscript, provided in compliance with the journal publisher's policy on self-archiving. Researchers may access the published version with the DOI provided in this record.

Permission documentation is on file.

Publisher

Elsevier

Volume

40

Peer Reviewed

yes