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Article
An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans
Journal of Banking & Finance
  • Nancy Mohan, University of Dayton
  • Ting Zhang, University of Dayton
Document Type
Article
Publication Date
3-1-2014
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
Peer Reviewed
Yes
Citation Information
Nancy Mohan and Ting Zhang. "An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans" Journal of Banking & Finance Vol. 40 (2014)
Available at: http://works.bepress.com/ting-zhang/6/