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Pension Funds under Investments Constraints: An Assessment of the Opportunity Cost to the Greek Social Security System


  • Milonas, Nikolaos /T
  • Papachristou, George
  • Roupas, Theodor /A


In this paper we study the opportunity loss of the Greek social security system in terms of risk and return, caused by the inflexible investment constraints under which Greek pension funds operated in the period 1958-2000. Using data on pension fund reserves as well as on money and capital market yields, we evaluate retrospectively the risks and returns of a more pro-investment fund reserve management by analyzing an indicative number of investment scenarios in local and international money and capital markets. In order to estimate local currency yields for international investment, we generate for the entire period – covering both a fixed and a partially floating exchange rates regime – a corresponding series of exchange rate variations based on the official rate fluctuations and inflation differentials. Our results suggest that in the 43-year period, there has been a significant opportunity loss in the system both in risk and returns: first, by excluding Greek bank deposits and Greek capital market securities that would have propped returns up at acceptable levels of risk and, second, by not allowing for some degree of international diversification that would have kept overall downside risk down. This opportunity loss could have alleviated, to some extent, the current imbalance of the system, had some of the restrictive investment rules been relaxed.

Suggested Citation

  • Milonas, Nikolaos /T & Papachristou, George & Roupas, Theodor /A, 2010. "Pension Funds under Investments Constraints: An Assessment of the Opportunity Cost to the Greek Social Security System," MPRA Paper 36702, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36702

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    References listed on IDEAS

    1. Kouretas, Georgios P & Zarangas, Leonidas P, 1998. "A Cointegration Analysis of the Official and Parallel Foreign Exchange Markets for Dollars in Greece," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 261-276, July.
    2. Manfred Koch & Christian Thimann, 1999. "From Generosity to Sustainability: The Austrian Pension System and Options for its Reform," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(1), pages 21-38, March.
    3. Disney, Richard, 2000. "Crises in Public Pension Programmes in OECD: What Are the Reform Options?," Economic Journal, Royal Economic Society, vol. 110(461), pages 1-23, February.
    4. Milonas, Nikolaos T. & Papachristou, George A. & Roupas, Theodore A., 2009. "Fund management and its effect in the Greek social security system," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(04), pages 485-500, October.
    5. N. A. Barr, 2000. "Reforming Pensions; Myths, Truths, and Policy Choices," IMF Working Papers 00/139, International Monetary Fund.
    6. Weller, Christian E. & Wenger, Jeffrey B., 2009. "Prudent investors: the asset allocation of public pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(04), pages 501-525, October.
    7. Christian E. Weller, 2000. "Risky business? Evaluating market risk of equity investment proposals to reform social security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(2), pages 263-273.
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    More about this item


    pension funds; financial investment;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors


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