Transformations  in
Business & Economics

DOES RISK MANAGEMENT USING DERIVATIVES IMPROVETHE FINANCIAL PERFORMANCE OF PENSION FUNDS? EMPIRICAL EVIDENCE FROM ROMANIA
Sorin Gabriel Anton, Elena Toader, Bogdan Narcis Firtescu

ABSTRACT. The aim of the paper is to analyse the effects of the use of financial derivatives for risk management of the financial performance of Romanian pension funds. Using a sample of 14 second pillar pension funds for the period from June 2008 till March 2016, it was found that the differences in the use of financial derivatives explain the variations of financial performance across the pension funds. The results of the panel data analysis showed that pension funds employing financial derivatives for risk management exhibit a higher performance than the non-users. The research indicated that a 1% increase in the share of financial derivatives in total assets is associated with the increase of roughly 0.4% of the monthly rate of return. The aforementioned results have significant implications for supervisory authorities in designing new policies, for individual investors in selecting their pension fund, and for fund managers .

KEYWORDS:  risk management, financial derivatives, private pension funds, financial performance, Romania.

JEL classification:  G11, G15, J32.