Short-Termism of Long-Term Investors? The Investment Behaviour of Dutch Insurance Companies and Pension Funds

29 Pages Posted: 12 Apr 2016

See all articles by Patty Duijm

Patty Duijm

De Nederlandsche Bank

Sophie Steins Bisschop

De Nederlandsche Bank

Date Written: December 21, 2015

Abstract

Counter cyclical long-term investment strategies of insurance companies and pension funds (ICPFs) can support the stability of the financial system. Yet there is limited understanding of how ICPFs invest during market shocks, such as the global financial crisis and the European sovereign debt crisis. The intention of this paper is to fill that lacuna by investigating Dutch ICPFs’ equity and sovereign bond portfolios. A first analysis shows that while ICs massively sold equities during the crisis, PFs kept buying equities as markets tumbled. Results from our regression analysis over a longer time horizon suggest pro-cyclical behaviour by ICs, while for PFs we do not find evidence for pro-cyclical or counter cyclical investment behaviour. Moreover, both ICs and PFs sold their affected sovereign bonds prior to a rating downgrade. This could be considered as destabilising at a macro-level, as it may accelerate the deteriorating financing conditions of the affected countries.

Keywords: microprudential, macroprudential, investment behaviour, pension funds, insurance companies, procyclicality, Solvency II, global financial crisis

JEL Classification: E44, G01, G11, G22, G28

Suggested Citation

Duijm, Patty and Steins Bisschop, Sophie, Short-Termism of Long-Term Investors? The Investment Behaviour of Dutch Insurance Companies and Pension Funds (December 21, 2015). De Nederlandsche Bank Working Paper No. 489. Available at SSRN: https://ssrn.com/abstract=2762200 or http://dx.doi.org/10.2139/ssrn.2762200

Patty Duijm (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Sophie Steins Bisschop

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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