An empirical analysis of the investment performance of the Chilean pension system

H. Fred Mittelstaedt and John C. Olsen

Journal of Pension Economics and Finance, 2003, vol. 2, issue 1, 7-24

Abstract: The Chilean national pension system is often viewed as the model for moving from a pay-as-you-go system to a prefunded, individual account system. One measure of its success has been its 12% average real rate of return. This study uses monthly return data to examine the source of these returns and to compare the risk-adjusted returns of the pension system to those of Chilean stock indices, debt instruments, and mutual funds. Tests using the Sharpe ratio and the multi-factor Jensen alpha suggest that the pension returns are consistent with the overall riskiness of the Chilean economy. Based on our findings, neither the structure of the Chilean pension system nor the performance of the fund managers should permit the system to earn abnormally high returns in the future.

Date: 2003
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