Price effects of asset forced sales during massive pension funds withdrawals

Abstract

In July 2020, the Chilean Congress made an unexpected modification to the Constitution, allowing workers to take their mandatory pension savings for the first time since the pension system was established in 1981. Two other withdrawals took place in December 2020 and April 2021. Pension fund administrators had to liquidate assets (stocks and bonds) worth 20% of GDP within a short period. Using difference-in-differences and event study methods, we analyze these events, demonstrating how forced sales affected domestic asset prices. Our findings reveal that selling pressures during withdrawals impact domestic asset prices, with the Central Bank’s intervention in the bond market playing a significant role in shaping these effects.