Performance of Spanish pension funds: robust evidence from alternative models

Abstract

This article investigates the performance of Spanish pension funds using a range of linear and nonlinear performance models. As the sample presents characteristics of higher-order moments, traditional performance measures are distorted. We generate alternative performance models which include higher-order risk factors that model skewness and kurtosis; factors that capture nonlinearity inherent in some of the underlying assets used in pension funds. The results suggest that Spanish pension funds exhibit positive market timing and selectivity ability. Moreover, this positive performance is robust to the model used to adjust performance for risk, including the higher-order risk factors. The stronger performing pension funds have a higher exposure to size and book-to-market risk. Also, small-sized funds and funds with less volatility exhibit stronger performance.