TY - JOUR
T1 - Assessing the effects of unconventional monetary policy and low interest rates on pension fund risk incentives
AU - Boubaker, Sabri
AU - Gounopoulos, Dimitrios
AU - Nguyen, Duc
AU - Paltalidis, Nikos
PY - 2017/4/30
Y1 - 2017/4/30
N2 - In this article the role of unconventional monetary policy and low interest rates are amplified as one of a series of components of possible explanations on US pension funds risk taking and asset allocation behavior. We quantify the effects of persistently low interest rates near to the zero lower bound, and the unconventional monetary policy adopted by the Federal Reserve by using counterfactual scenarios and two structural Vector AutoRegressive (VAR) models. We provide the first comprehensive evidence showing that monetary policy shocks, identified as changes in interest rates that lead to larger or smaller changes in Treasury yields, are followed by a substantial increase in equity assets. The shift from Treasury bonds to equity securities is greater during the unconventional monetary policy period. We document a positive correlation between pension fund risk taking, low interest rates and the decline in Treasury yields across well-funded and underfunded pension plans, which is consistent with a structural risk shifting incentive.
AB - In this article the role of unconventional monetary policy and low interest rates are amplified as one of a series of components of possible explanations on US pension funds risk taking and asset allocation behavior. We quantify the effects of persistently low interest rates near to the zero lower bound, and the unconventional monetary policy adopted by the Federal Reserve by using counterfactual scenarios and two structural Vector AutoRegressive (VAR) models. We provide the first comprehensive evidence showing that monetary policy shocks, identified as changes in interest rates that lead to larger or smaller changes in Treasury yields, are followed by a substantial increase in equity assets. The shift from Treasury bonds to equity securities is greater during the unconventional monetary policy period. We document a positive correlation between pension fund risk taking, low interest rates and the decline in Treasury yields across well-funded and underfunded pension plans, which is consistent with a structural risk shifting incentive.
U2 - 10.1016/j.jbankfin.2016.12.007
DO - 10.1016/j.jbankfin.2016.12.007
M3 - Article
VL - 77
SP - 35
EP - 52
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
ER -