The Role of International Diversification in Public Pension Systems: The Case of Pakistan

Wade Pfau

MPRA Paper from University Library of Munich, Germany

Abstract: Pakistan’s pension system is in the process of increasing funding in anticipation of providing for a growing elderly population. The pension assets are mainly invested domestically, as it was just in January 2007 that regulations changed to allow the purchase of international assets. In this paper, we quantify how diversification of the pension funds to include world financial assets could help a great deal in improving the sustainability of Pakistan pensions by simultaneously increasing expected returns and decreasing volatility. These arguments are made using historical data, and the robustness of our findings is demonstrated using a large variety of alternative assumptions about future asset returns, risks, and correlations. We find that international diversification could dramatically help to create sustainability for Pakistan’s main public pension system available to private workers.

Keywords: pension; asset allocation; financial markets; Asia; Pakistan (search for similar items in EconPapers)
JEL-codes: G11 G23 H55 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-age and nep-cwa
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Citations: View citations in EconPapers (4)

Published in Economic Issues 2.14(2009): pp. 81-105

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Journal Article: The Role of International Diversification in Public Pension Systems: The Case of Pakistan (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19037

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