OPTIMAL PORTFOLIO ALLOCATIONS AND FUNDED PENSION SYSTEMS: THE CASE OF CHILE

Abstract

The paper uses 101 years of Chilean and international financial assets returns to investigate mean-variance optimal portfolio allocations. The key conclusion is that the share of international unhedged investments is substantial even in minimum risk portfolios (20%), unless the period 1980–2002 is assumed to be drawn from a different distribution and previous history is disregarded. In addition to that, the paper finds that mean-variance optimal investors would have generated substantial demand for an asset replicating the return profile of an efficient pay-as-you-go pension scheme. Labour income and departures from log-normality of returns might, however, affect the latter conclusion.

Citation

Cardinale, M. (2005), "OPTIMAL PORTFOLIO ALLOCATIONS AND FUNDED PENSION SYSTEMS: THE CASE OF CHILE", Arbelaez, H. and Click, R.W. (Ed.) Latin American Financial Markets: Developments in Financial Innovations (International Finance Review, Vol. 5), Emerald Group Publishing Limited, Leeds, pp. 461-520. https://doi.org/10.1016/S1569-3767(05)05021-1