 Emerging Market Pension Funds and International DiversificationWade D. Pfau ()
Journal of Developing Areas, 2011, vol. 45, issue 1, 1-17 Abstract: Many countries are currently increasing the advanced funding of their public pension systems to improve their sustainability in the face of rapidly aging populations. When pensions are funded, the issue of asset allocation becomes of paramount importance. Standard portfolio selection theory provides a fundamental justification for international diversification: by widening the pool of potential assets, investors can potentially increase returns while possibly even reducing risks through the selection of complementary assets with low correlations. Nonetheless, many emerging market countries have regulations that strictly limit the choice of investments for pension funds, in some cases excluding international assets entirely. This paper uses modern portfolio theory to determine the optimal asset allocation for public pension systems in emerging market countries. We find that on average, about half of the portfolios of emerging market countries should be in world assets. The paper then quantifies the costs of prohibiting international diversification. Keywords: asset allocation; emerging markets; pensions; international diversification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.45:year:2011:issue1:pp:1-17 Access Statistics for this article More articles in Journal of Developing Areas from Tennessee State University, College of Business Contact information at EDIRC. |
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