Pension Fund Asset Allocation in Low Interest Rate Environment

40 Pages Posted: 20 Apr 2016

See all articles by Dennis Bams

Dennis Bams

Maastricht University - Department of Finance; DLL

Peter C. Schotman

Maastricht University - Department of Finance

Mukul Tyagi

Maastricht School of Business and Economics

Date Written: March 21, 2016

Abstract

We analyze changes in portfolios of pension funds since the start of current low interest rate environment. We find that they have on average decreased the allocation to equity and increased the allocation to fixed income, which is inconsistent with the literature on strategic asset allocation. Next, more generally, we empirically investigate the relationship between variables that predict asset returns and portfolio allocation in levels as well as changes. We find that dividend-price ratio shows the strongest relationship among other variables. However, we find a negative relationship as opposed to a positive one predicted by the literature. Overall, the results suggest that pension funds are unable to incorporate predictive information in their strategic asset allocation, but they take active decisions by under or over-weighting their portfolio relative to the stated strategic portfolio to benefit from time-varying investment opportunities.

Keywords: Pension Funds, Asset Allocation, Portfolio Choice

JEL Classification: G11, G12, G23

Suggested Citation

Bams, Dennis and Schotman, Peter C. and Tyagi, Mukul, Pension Fund Asset Allocation in Low Interest Rate Environment (March 21, 2016). Netspar Discussion Paper No. 03/2016-017. Available at SSRN: https://ssrn.com/abstract=2766512 or http://dx.doi.org/10.2139/ssrn.2766512

Dennis Bams

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

DLL ( email )

Eindhoven
Netherlands

Peter C. Schotman

Maastricht University - Department of Finance ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3862 (Phone)
+31 43 388 4875 (Fax)

Mukul Tyagi (Contact Author)

Maastricht School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
494
Abstract Views
1,451
rank
55,455
PlumX Metrics