The risk appetite of pension funds

The purpose of this thesis project is to concentrate on a unique country and investigate the effect of pension funds’ characteristics on their risk appetite by observing their different investment strategies. The country we focus on is Greece. To develop our research we apply a panel data analysis using both fixed and random effects on 81 pension funds for the time period 2005-2009. We conjectue a negative relationship between age and equity in according with the life-cycle investment theory as well as a positive size-equity relationship. Additionally, we test the economic sector-stock relationship for 17 sectors by assuming a positive sector-equity relationship for industries with the appropriate “know-how” when investing. We find that younger pension funds as well as the wealthier ones tend to take more risk on average by indeed indicating the negative age-equity and the positive size-equity relationships respectively as we conjectured. Moreover, we find that the majority of the economic sectors in which pension funds belong to, do not significantly affect their funds’ risk taking behavior while only the Banking sector significantly positively affects its pension funds’ risk appetite.