IDEAS home Printed from https://ideas.repec.org/a/bla/ausecp/v51y2012i1p23-37.html
   My bibliography  Save this article

Reforming Pension Funds In Sri Lanka: International Diversification And The Employees' Provident Fund

Author

Listed:
  • AJANTHA SISIRA KUMARA
  • WADE PFAU

Abstract

The Employees’ Provident Fund (EPF) of Sri Lanka is a defined-contribution pension fund whose pooled asset holdings consist mainly of local government bonds. Regulations prohibit international diversification, and this paper aims to quantify the extent of the potential harms, if any, caused by this constraint. To improve the robustness of the findings, we use two distinct methodologies. These include traditional mean-variance analysis from modern portfolio theory, and Monte Carlo simulations that estimate the distribution of wealth accumulated at retirement from the contributions of a hypothetical worker. Both methods produce qualitatively and quantitatively similar results: workers with risk aversion varying from aggressive to conservative will be better served by allowing international diversification. The results are particularly persuasive for the second approach. The EPF fund managers will likely behave fairly conservatively toward risk, which suggests that around half of the fund assets should be invested abroad.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ajantha Sisira Kumara & Wade Pfau, 2012. "Reforming Pension Funds In Sri Lanka: International Diversification And The Employees' Provident Fund," Australian Economic Papers, Wiley Blackwell, vol. 51(1), pages 23-37, March.
    • Handle: RePEc:bla:ausecp:v:51:y:2012:i:1:p:23-37
    DOI: j.1467-8454.2012.00420.x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-8454.2012.00420.x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/j.1467-8454.2012.00420.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mr. Jorge A Chan-Lau, 2004. "Pension Funds and Emerging Markets," IMF Working Papers 2004/181, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kariastanto, Bayu, 2011. "Should the Indonesian pension funds invest abroad?," MPRA Paper 33581, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alejandro Reveiz & Carlos León & Juan Mario Laserna & Ivonne Martínez, 2008. "Recomendaciones para la modificación del régimen de pensiones obligatorias de Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 26(56), pages 78-113, June.
    2. Wade D. Pfau, 2008. "Emerging Market Pension Funds and International Diversification," GRIPS Discussion Papers 08-10, National Graduate Institute for Policy Studies.
    3. Musalem, Alberto R. & Pasquini, Ricardo, 2012. "Private pension systems : cross-country investment performance," Social Protection Discussion Papers and Notes 68937, The World Bank.
    4. Groh, Alexander P. & Liechtenstein, Heinrich & Canela, Miguel A., 2008. "Limited partners' perceptions of the Central Eastern European venture capital and private equity market," IESE Research Papers D/727, IESE Business School.
    5. Yuwei Hu, 2012. "Growth of Asian Pension Assets: Implications for Financial and Capital Markets," Working Papers id:5025, eSocialSciences.
    6. Rehman, Fahd, 2010. "Asset Allocation for Government Pension Funds in Pakistan:A Case for International Diversification," MPRA Paper 25060, University Library of Munich, Germany.
    7. Bank for International Settlements, 2009. "Capital flows and emerging market economies," CGFS Papers, Bank for International Settlements, number 33, december.
    8. Anna Zalewska, 2006. "Is Locking Domestic Funds into the Local Market Beneficial? Evidence from the Polish Pension Reforms," The Centre for Market and Public Organisation 06/153, The Centre for Market and Public Organisation, University of Bristol, UK.
    9. Jane D'Arista, 2008. "The Implications of Aging for the Structure and Stability of Financial Markets," Working Papers wp163, Political Economy Research Institute, University of Massachusetts at Amherst.
    10. Mehdi Ben Braham, 2006. "Pension reform in emerging countries: Simulations on the Tunisian case," NFI Working Papers 2006-WP-06, Indiana State University, Scott College of Business, Networks Financial Institute.
    11. Fahad Rehman, 2010. "Asset Allocation for Government Pension Funds in Pakistan: A Case for International Diversification," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 127-151, Jan-Jun.
    12. Bohl, Martin T. & Lischewski, Judith & Voronkova, Svitlana, 2010. "Pension funds' performance in strongly regulated industries in Central Europe: Evidence from Poland and Hungary," ZEW Discussion Papers 10-076, ZEW - Leibniz Centre for European Economic Research.
    13. Ajantha Kumara & Wade Pfau, 2013. "Would emerging market pension funds benefit from international diversification: investigating wealth accumulations for pension participants," Annals of Finance, Springer, vol. 9(3), pages 319-335, August.
    14. Mr. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey," IMF Working Papers 2011/092, International Monetary Fund.
    15. Hu, Yuwei, 2012. "Growth of Asian Pension Assets: Implications for Financial and Capital Markets," ADBI Working Papers 360, Asian Development Bank Institute.
    16. Martin T. Bohl, Judith Lischewski and Svitlana Voronkova, 2008. "Does Regulation Hurt Pension Funds' Performance? Evidence from Strongly Regulated Pension Fund Industries," The Institute for International Integration Studies Discussion Paper Series iiisdp247, IIIS.
    17. Wade D. Pfau, 2007. "Asset Allocation for the Pakistan Pension System: A Role for International Diversification?," GRIPS Discussion Papers 07-06, National Graduate Institute for Policy Studies.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecp:v:51:y:2012:i:1:p:23-37. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.