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Familiarity Breeds Alternative Investment: Evidence from Corporate Defined-Benefit Pension Plans

Author

Listed:
  • Christina Atanasova

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Gilles Chemla

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We show that corporate R&D intensity and Land and Buildings intensity increase sponsored defined-benefit pension plan investment in private equity and real estate, respectively. Pension funds with such alternative investment tilts underperform significantly, which is inconsistent with plans benefiting from an informational advantage or asset-specific expertise. We find some evidence consistent with the existence of spillovers between pension funds with portfolio tilts and their corporate sponsors. Our results are consistent with theories of familiarity based on ambiguity aversion and on fear of the unknown. This familiarity bias in asset allocation is both robust and economically significant.

Suggested Citation

  • Christina Atanasova & Gilles Chemla, 2017. "Familiarity Breeds Alternative Investment: Evidence from Corporate Defined-Benefit Pension Plans," Working Papers hal-01451096, HAL.
    • Handle: RePEc:hal:wpaper:hal-01451096
    as

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