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The Effects of Capital Controls on the Return on Assets of the Icelanic Pension Funds

Finnsdóttir, María LU (2011) NEKM01 20111
Department of Economics
Abstract (Swedish)
Icelandic authorities implemented capital controls in October 2008, in a response to the global financial crisis and to prevent outflow of foreign reserves. This was done to protect the Icelandic krona from depreciating and to gain monetary autonomy. However, the operational activity of the pension funds in Iceland has been affected by this policy change, as the funds have been missing out on foreign investment opportunities and risk diversification. The purpose of this study is to examine the effects of the capital controls on the real return of the pension funds in Iceland. The analysis employs a difference-in-differences method, where Ireland will be used as a control group. The real return will be regressed up on policy dummies as well... (More)
Icelandic authorities implemented capital controls in October 2008, in a response to the global financial crisis and to prevent outflow of foreign reserves. This was done to protect the Icelandic krona from depreciating and to gain monetary autonomy. However, the operational activity of the pension funds in Iceland has been affected by this policy change, as the funds have been missing out on foreign investment opportunities and risk diversification. The purpose of this study is to examine the effects of the capital controls on the real return of the pension funds in Iceland. The analysis employs a difference-in-differences method, where Ireland will be used as a control group. The real return will be regressed up on policy dummies as well as country specific and external variables to net out impacts of the domestic and external environment. The results appear to be economically significant and the capital controls seem to have negative effects, ranging between -0.09% and -0.3% on monthly basis, which will add up to -1% to -3.5% on annual levels. Not all test statistics were significant so further research is recommended, where a larger time span and more control groups will be included. (Less)
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author
Finnsdóttir, María LU
supervisor
organization
course
NEKM01 20111
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Capital Controls, Icelandic Pension Funds, Difference-in-Differences method, Real Return
language
English
id
2154226
date added to LUP
2011-09-27 08:57:30
date last changed
2011-09-27 08:57:30
@misc{2154226,
  abstract     = {Icelandic authorities implemented capital controls in October 2008, in a response to the global financial crisis and to prevent outflow of foreign reserves. This was done to protect the Icelandic krona from depreciating and to gain monetary autonomy. However, the operational activity of the pension funds in Iceland has been affected by this policy change, as the funds have been missing out on foreign investment opportunities and risk diversification. The purpose of this study is to examine the effects of the capital controls on the real return of the pension funds in Iceland. The analysis employs a difference-in-differences method, where Ireland will be used as a control group. The real return will be regressed up on policy dummies as well as country specific and external variables to net out impacts of the domestic and external environment. The results appear to be economically significant and the capital controls seem to have negative effects, ranging between -0.09% and -0.3% on monthly basis, which will add up to -1% to -3.5% on annual levels. Not all test statistics were significant so further research is recommended, where a larger time span and more control groups will be included.},
  author       = {Finnsdóttir, María},
  keyword      = {Capital Controls,Icelandic Pension Funds,Difference-in-Differences method,Real Return},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Effects of Capital Controls on the Return on Assets of the Icelanic Pension Funds},
  year         = {2011},
}