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A two-step hybrid investment strategy for pension funds

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  • Pagnoncelli, Bernardo K.
  • Cifuentes, Arturo
  • Denis, Gabriela

Abstract

We propose a two-step hybrid investment strategy suitable for pension funds. Our method consists of an active component (an optimization-based approach to decide the asset allocation), followed by a passive strategy (an index-based approach). We test our strategy with data from the Chilean pension system using two different risk metrics and we show that our approach, in three out of five cases, yields results that are better than those generated by the Chilean fund administrators. In the two cases where our approach underperformed we show that it was the result of excessively tight constraints set up by the regulator.

Suggested Citation

  • Pagnoncelli, Bernardo K. & Cifuentes, Arturo & Denis, Gabriela, 2017. "A two-step hybrid investment strategy for pension funds," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 574-583.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:574-583
    DOI: 10.1016/j.najef.2017.09.001
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    References listed on IDEAS

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    Cited by:

    1. Gutierrez, Tomás & Pagnoncelli, Bernardo & Valladão, Davi & Cifuentes, Arturo, 2019. "Can asset allocation limits determine portfolio risk–return profiles in DC pension schemes?," Insurance: Mathematics and Economics, Elsevier, vol. 86(C), pages 134-144.

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