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

Author

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  • Georges de Menil

    (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique, Stern School of Business - NYU - New York University [New York] - NYU - NYU System)

Abstract

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.

Suggested Citation

  • Georges de Menil, 2005. "Why should the portfolios of mandatory private pension funds becaptive ? (The foreign investment question)," Post-Print halshs-00754102, HAL.
  • Handle: RePEc:hal:journl:halshs-00754102
    DOI: 10.1016/j.jbankfin.2004.06.018
    Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754102
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    References listed on IDEAS

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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.
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    11. Bodie, Zvi & Merton, Robert C., 2002. "International pension swaps," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(1), pages 77-83, March.
    12. 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.
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