Asset Allocation for the Pakistan Pension System: A Role for International Diversification?

Wade Pfau

No 07-06, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: Pakistan’s pension system is in the process of increasing funding in anticipation of providing for a growing elderly population. Regulations require that these pension assets be invested domestically. In this paper, we quantify how diversification of the pension funds to include world financial assets could help a great deal in improving the sustainability of Pakistan pensions by simultaneously increasing expected returns and decreasing volatility. These arguments are made using historical data, and the robustness of our findings is demonstrated using a large variety of alternative assumptions about future asset returns, risks, and correlations.

Keywords: pension; asset allocation; financial markets; Asia; Pakistan (search for similar items in EconPapers)
JEL-codes: G11 G23 H55 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-10
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