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

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  • Georges de Menil

    (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - 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
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    Cited by:

    1. Cristian Escudero & José L. Ruiz, 2021. "Life insurance companies’ investment abroad and the internal rate of return on Chilean annuities," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(4), pages 688-709, October.
    2. Mei-Ling Tang & Ting-Pin Wu & Ming-Chin Hung, 2022. "Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment," Mathematics, MDPI, vol. 10(14), pages 1-21, July.

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