Risk analysis of the proxy life-cycle investments in the second pillar pension scheme in Croatia

Enata Kovacevic and Mladen Latkovic
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Enata Kovacevic: Raiffeisen Mandatory and Voluntary Pension Funds Management Company Plc, Zagreb, Croatia
Mladen Latkovic: Raiffeisen Mandatory and Voluntary Pension Funds Management Company Plc, Zagreb, Croatia

Financial Theory and Practice, 2015, vol. 39, issue 1, 31-55

Abstract: In this article we analyze the expected risk of pension funds with different risk profiles in the proxy life-cycle model of investments for the 2nd pillar pension scheme in Croatia. The benefits of implementing proxy life-cycle investments, compared to the previous model of mandatory pension funds investments, are clearly visible in the total expected amount of accumulated savings from the risk/return perspective. However, those benefits are partially diminished by the fact that the expected risk of a pension fund with the lowest risk profile is not substantially different from the expected risk of a pension fund with a medium risk profile, due to the lack of diversification. Additionally, we analyze the robustness of the proxy life-cycle model to a sudden and severe market shock, where we determine the presence of risk for those members who choose to switch to a pension fund with a lower risk profile at an unfavorable moment.

Keywords: defined contribution system; pension funds; life-cycle investing; portfolio risk (search for similar items in EconPapers)
JEL-codes: G11 G18 G19 G23 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ipf:finteo:v:39:y:2015:i:1:p:31-55

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