Estimating the Gains from International Diversification : The Case of Pension Funds
For pension funds, international assets represent an opportunity to improve their returns while possibly reducing risks. Nonetheless, pension funds in many developing countries face regulations that limit the choice of international investments. Th...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/199811618928307743/Estimating-the-Gains-from-International-Diversification-The-Case-of-Pension-Funds http://hdl.handle.net/10986/35482 |
| Summary: | For pension funds, international assets
represent an opportunity to improve their returns while
possibly reducing risks. Nonetheless, pension funds in many
developing countries face regulations that limit the choice
of international investments. This paper proposes a new
methodology to estimate the gains from international
diversification in which the optimal asset allocation of
pension funds is constrained by financial frictions. The
empirical strategy is applied to the aggregate holdings of
pension funds in a large group of countries to calculate the
gains from increasing the current level of exposure to
international securities. The methodology should give policy
makers the opportunity to identify jurisdictions where
pension funds could benefit the most from expanding their
foreign holdings. |
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