Regulation and Pension Fund Risk-Taking

52 Pages Posted: 5 Aug 2014 Last revised: 24 Jan 2017

See all articles by Ling-Ni Boon

Ling-Ni Boon

Tilburg University

Marie Briere

Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

Sandra Rigot

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN)

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 2017


We investigate the extent to which regulations governing investment, valuation and funding affect the riskiness of defined benefit pension funds' asset allocations. We compare the regulatory frameworks of public, corporate and industry pension funds in the United States, Canada and the Netherlands over 1992-2011. Derived from panel data analysis of a unique set of asset allocation details for close to 600 funds, our results highlight that regulatory factors are more economically significant than funds' characteristics in shaping their asset allocation. In particular, risk-based capital requirements and mark-to-market valuation are associated with a 7% lower risky asset exposure, regardless of market conditions. Most of the decline in investment risk-taking concerns equities. The exposure of a fund subject to a 100% funding requirement does not differ significantly from that of an unconstrained fund during normal times, but the constrained fund invests 2% less in risky assets during a financial crisis. In line with theoretical predictions, we find that risk-based capital requirements and minimum funding limits have different consequences for pension funds’ risk-taking during periods of financial market stress.

Keywords: Solvency, Pension funds, Defined benefit, Liability discount rate, Valuation requirements, Financial stability, Regulation

JEL Classification: G11, G28, H55

Suggested Citation

Boon, Ling-Ni and Briere, Marie and Rigot, Sandra, Regulation and Pension Fund Risk-Taking (January 23, 2017). Available at SSRN: or

Ling-Ni Boon (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE

Marie Briere

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015

Paris Dauphine University ( email )

Université Libre de Bruxelles ( email )


Sandra Rigot

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN) ( email )

Université Paris-Nord
Paris XIII

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