Foreign equity investment in Uruguayan pension funds

Eduardo Siandra and Carlos Testuri
Additional contact information
Eduardo Siandra: Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales. Departmento de Economía
Carlos Testuri: Universidad de la República. Facultad de Ingeniería. Departamento de Investigación Operativa

No 12, Documentos de Investigación from Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales

Abstract: This paper is a preliminary application of portfolio theories based on traditional (variance) and modern (Value at risk-VaR) measures of risk to determine the optimal participation of foreign equity investment in the Uruguayan pension funds industry on the basis of 1997-2000 asset return data. We address here an important public policy question, for foreign investment is restricted by regulation, and domestic equity market is practically non-existent. Our emphasis is on sector performance evaluation and indirect regulatory cost assessment. We find that optimal portfolios are highly polarized in two asset bundles whose expected returns and volatilities are in the opposite extremes. Although in the lower and of portfolio returns the "home bias" is remerkably strong, there is room for return enhancement by allowing a small shara of foreign equity investment. These results are robust to different empirical and normal shocks distribution assumptions. The extent of the home bias suggests a good performance and low regulatory costs. However, we point out the role of the non-modeled small probability but highly damaging events in the policy interpretation of our conclusions.

Keywords: pension funds; foreign equity investments; value at risk; Uruguay. (search for similar items in EconPapers)
JEL-codes: G11 G23 G28 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2002-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://dspace.ort.edu.uy/bitstream/handle/20.500. ... mentodetrabajo12.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:avs:wpaper:12

Access Statistics for this paper

More papers in Documentos de Investigación from Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales Contact information at EDIRC.
Bibliographic data for series maintained by Verónica Rodríguez (rodriguez_v@ort.edu.uy).