Dominance Tracking Index for Measuring Pension Fund Performance with Respect to the Benchmark

Milos Kopa, Kristina Sutiene, Audrius Kabasinskas, Ausrine Lakstutiene and Aidas Malakauskas
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Milos Kopa: Department of Mathematical Modeling, Kaunas University of Technology, Studentu 50, 51368 Kaunas, Lithuania
Kristina Sutiene: Department of Mathematical Modeling, Kaunas University of Technology, Studentu 50, 51368 Kaunas, Lithuania
Audrius Kabasinskas: Department of Mathematical Modeling, Kaunas University of Technology, Studentu 50, 51368 Kaunas, Lithuania
Ausrine Lakstutiene: School of Economics and Business, Kaunas University of Technology, Gedimino 50, 51368 Kaunas, Lithuania
Aidas Malakauskas: School of Economics and Business, Kaunas University of Technology, Gedimino 50, 51368 Kaunas, Lithuania

Sustainability, 2022, vol. 14, issue 15, 1-28

Abstract: This paper focuses on the performance of Lithuanian life-cycle second-pillar pension funds. Every such fund first specifies its benchmark and then attempts to follow the benchmark in some way. This is a form of regulation, meaning that every such fund is somehow regulated and controlled by the central bank authorities. The goal of this paper is twofold: (i) to analyse the returns of the pension funds with respect to their benchmarks and (ii) to determine whether less strict regulation leads to a better outperformance of the fund with respect to the benchmark. In order to achieve this, we introduced a new performance measure called the dominance-tracking index, which combines the ideas of almost stochastic dominance relations and tracking errors. While the tracking error and its modifications measure the strength of the regulation, almost stochastic dominance provides information about preferences between the funds and their benchmarks. Therefore, the new index was constructed in such a way as to take into account both approaches. The empirical section of the study then presents the results separately for the considered pension managers and participants’ age groups as usual in the life-cycle pension funds analysis. Finally, by taking into account various periods, we studied the effects of the COVID-19 crisis.

Keywords: pension fund; management; regulation; life-cycle strategy; benchmark; stochastic dominance; almost stochastic dominance; risk assessment; COVID-19 (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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