Ineffective regulation to force lengthening: The case of the Brazilian Pension Plans

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Published: Dec 26, 2019
DOI: https://doi.org/10.12660/rbfin.v17n4.2019.78756
Keywords:
Private Pension Portfolio Interest Rate Long-term Regulation.

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Luiz Guilherme Carpizo
Pontifícia Universidade Católica do Rio de Janeiro
Márcio Gomes Pinto Garcia
Pontifícia Universidade Católica do Rio de Janeiro

Abstract

Despite the fall in the interest rate observed in Brazil in recent decades, and specific regulations on the private pension segment that encourage long-term risk taking, institutions in this segment appear to be considerably sensitive to short-term factors, while avoiding exposure to long-term risk factors. With portfolio allocation data from large entities, we implemented a VAR model to evaluate the impact of interest rate changes on portfolio management decisions and performed a counterfactual analysis to define the causal effect of regulation on additional risk taking. Results indicate that interest rate increases lead to significant and persistent reduction of investment in riskier assets with longer maturities, while the implemented regulation was not able to force greater risk-taking by institutions, in addition to generating distortions in segments of the Brazilian financial market.

Article Details

Issue
Vol. 17 No. 4 (2019): October-December
Section
Long Paper
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Author Biography

Márcio Gomes Pinto Garcia, Pontifícia Universidade Católica do Rio de Janeiro

Economista, professor da Pontifícia Universidade Católica do Rio de Janeiro.