Would emerging market pension funds benefit from international diversification: investigating wealth accumulations for pension participants
AbstractIn recent years, investment portfolio selection is growing in importance for many emerging market pension funds, as pension reforms replace traditional pay-as-you-go systems with advanced funding systems. Various investment regulations are applied to the funded pensions, particularly in the form of portfolio limits for equities and international assets. With a bootstrap simulation approach, this paper attempts to quantify the impacts on retirement benefits of restricting international assets from the investment portfolios of emerging market pension funds. We find that, on average, over half of the pension portfolios of emerging market countries should be in international assets in order to maximize the expected utility of moderate and conservative pension fund participants. More generally, international assets can play a significant role in the investment portfolios for workers with risk aversion varying from aggressive to conservative. With few exceptions, the entire probability distribution of wealth accumulations at retirement could be shifted higher with the inclusion of international assets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31395.
Date of creation: 08 Jun 2011
Date of revision: 10 Jun 2011
Emerging Market Pension Funds; International Diversification; Bootstrapping; Monte Carlo Simulations;
Other versions of this item:
- Ajantha Kumara & Wade Pfau, 2013. "Would emerging market pension funds benefit from international diversification: investigating wealth accumulations for pension participants," Annals of Finance, Springer, vol. 9(3), pages 319-335, August.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-06-18 (Economics of Ageing)
- NEP-ALL-2011-06-18 (All new papers)
- NEP-IFN-2011-06-18 (International Finance)
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.:
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