Assessing Alternative Institutional Designs For Investment Regulation In Defined Contribution Pension Funds
AbstractThis article provides a stylized framework to assess alternative institutional designs for investment regulation, in the context of mandatory defined contribution pension fund systems with individual accounts and competition among managers. We illustrate short-term, long-term and competitive risk-return frontiers, visualizing the differences in perspectives and incentives. We identify a potential “inefficiency trap”, meaning that if the benchmark is inefficient there will be no obvious incentives to move portfolios towards the frontier. We also argue that ceteris paribus competitive incentives will move managers to take more risk, either gradually or abruptly, with no obvious limits to this. We then discuss different institutional arrangements that could help in moving asset allocations towards efficient positions and to mitigate risk-taking incentives: minimum required absolute returns; maximum allowable short-term absolute risk; maximum allowable long-term absolute risk; and minimum returns relative to exogenous or endogenous benchmarks. We conclude that a setting with partially exogenous benchmarks and minimum return bands may constitute one of the better policy alternatives, despite its own limitations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.
Volume (Year): 11 (2008)
Issue (Month): 2 ()
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
- Varas, Felipe & Walker, Eduardo, 2011. "Optimal close-to-home biases in asset allocation," Journal of Business Research, Elsevier, vol. 64(3), pages 328-337, March.
- Rodrigo Cerda, 2006. "Movilidad en la Cartera de Cotizantes por AFP: La Importancia de ser Primero en Rentabilidad," Documentos de Trabajo 309, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Isabelle Bajeux-Besnainou & James V. Jordan & Roland Portait, 2003. "Dynamic Asset Allocation for Stocks, Bonds, and Cash," The Journal of Business, University of Chicago Press, vol. 76(2), pages 263-288, April.
- Thompson, Graeme, 2008. "Risk-based supervision of pension funds in Australia," Policy Research Working Paper Series 4539, The World Bank.
- Campbell, John Y & Viceira, Luis M, 2005.
"The Term Structure of the Risk-Return Tradeoff,"
CEPR Discussion Papers
4914, C.E.P.R. Discussion Papers.
- Livio Stracca, 2006.
"Delegated Portfolio Management: A Survey Of The Theoretical Literature,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 20(5), pages 823-848, December.
- Stracca, Livio, 2005. "Delegated portfolio management: a survey of the theoretical literature," Working Paper Series 0520, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gimena Pardo).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.