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Why should the portfolios of mandatory, private pension funds be captive? (The foreign investment question)

  • de Menil, Georges

A model of portfolio optimization, which takes account of the difference between the private and social cost of foreign investment, is used to analyze the relationship between capital shortages and the international diversification of mandatory, private pension funds in developing and transition countries. The socially optimal rate of foreign portfolio investment may be positive, even when access to international capital markets is limited. I propose replacing investment limits with a tax on foreign investments, equal to the difference between their social and private cost. The use of international pension swap is seen to be formally equivalent to the imposition of such a tax.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(04)00118-9
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 29 (2005)
Issue (Month): 1 (January)
Pages: 123-141

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Handle: RePEc:eee:jbfina:v:29:y:2005:i:1:p:123-141
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  2. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  3. Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
  4. Gehrig, Thomas, 1993. " An Information Based Explanation of the Domestic Bias in International Equity Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 97-109.
  5. Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings, stock, and asset markets," Policy Research Working Paper Series 2490, The World Bank.
  6. Richard Portes, 2005. "The Determinants of Cross-Border Equity Flows," Post-Print halshs-00754100, HAL.
  7. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
  8. von Gersdorff, Hermann, 1997. "Pension reform in Bolivia : innovative solutions to common problems," Policy Research Working Paper Series 1832, The World Bank.
  9. Impavido, Gregorio & Musalem, Alberto R. & Vittas, Dimitri, 2002. "Contractual savings in countries with a small financial sector," Policy Research Working Paper Series 2841, The World Bank.
  10. Impavido, Gregorio & Musalem, Alberto R. & Tressel, Thierry, 2003. "The impact of contractual savings institutions on securities markets," Policy Research Working Paper Series 2948, The World Bank.
  11. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  12. Afanasiev, S.A., 2003. "Pension Reform in Russia: First Year of Implementing," Discussion Paper 146, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
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