European Union pension funds and the home bias. Geographical asset allocation in light of three goals set by the European Commission

  • Melle Bakker Melle Bakker

This thesis examines whether European Union pension funds overweigh domestic assets in their portfolio and aims to determine why they have a so called home bias. Up to 79% of the 110 respondents of a secondary survey are shown to be biased towards domestic and European assets when compared to the capital asset pricing model. Part of the home bias can be explained by real exchange rate risks, asymmetric information and behavioural factors. Further explanations, such as indirect diversification benefits, human capital correlation, stock market development, funds characteristics and regulation on foreign asset holdings are discussed, estimated and tested. In conclusion this paper finds that real exchange rate volatility and bond holdings have a significantly positive relationship with pension fund home biases. Funds who allocate more of their portfolio to bonds also have a higher home bias for their equity portfolios. The percentage of externally managed portfolio shows a negative relationship with fund home biases. There is no significant effect for different fund sizes, types and regulations. Surprisingly, funds that are located in countries with higher human capital correlations show higher home biases, especially for equities.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda


Our partners

B20160708_tilburg university
View all partners