A Comparison of Indexing and Beta Among Pension and Non-Pension Assets

Posted: 16 Jun 1998

See all articles by Stephen Horan

Stephen Horan

CFP Board of Standards; University of North Carolina Wilmington

Abstract

In this article I contrast the investment behavior of institutional portfolios having pension assets with those portfolios having nonpension assets. Differences in incentive compensation plans and regulation give pension executives unique incentives to track benchmark indices. Accordingly, pension assets are more likely than nonpension assets to be allocated to index funds. Also, portfolios composed of pension assets are more likely than other portfolios to (i) have low tracking error in absolute value, (ii) be index funds, and (iii) have market betas close to one. Portfolios with relatively large pension asset market share exhibit similar characteristics, and the tendency to index increases with asset class risk. Actively managed pension assets are also more likely to be invested in lower-risk asset classes than actively managed nonpension assets.

JEL Classification: G10, G11, G23

Suggested Citation

Horan, Stephen, A Comparison of Indexing and Beta Among Pension and Non-Pension Assets. Available at SSRN: https://ssrn.com/abstract=89109

Stephen Horan (Contact Author)

CFP Board of Standards ( email )

1425 K Street NW #800
Washington, DC 20005
United States

University of North Carolina Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States
4342272281 (Phone)
28405 (Fax)

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