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A minimum variance benchmark to measure the performance of pension funds in Mexico

Author

Listed:
  • Oscar V. De la Torre Torres

    (Universidad Michoacana de San Nicolás de Hidalgo)

  • Evaristo Galeana Figueroa

    (Universidad Michoacana de San Nicolás de Hidalgo)

  • María Isabel Martínez Torre Enciso

    (Universidad Autónoma de Madrid)

  • Dora Aguilasocho Montoya

    (Universidad Michoacana de San Nicolás de Hidalgo)

Abstract

We propose the use of the minimum variance portfolio as weighting method in a strategy benchmark for pension funds performance in Mexico. By performing three discrete event simulations with daily data from January 2002 to May 2013, we test this benchmark’s weighting method against the Max Sharpe ratio one and a linear combination of both benchmarks (minimum variance and Max Sharpe). With the Sharpe ratio, the Jensen’s alpha significance test and the Huberman and Kandel’ (1987) spanning test, we found that the three benchmarks have a statistically equal performance. By using Bailey’s (1992) risk exposure, market representativeness and turn over benchmark quality criteria, we found that the min variance is preferable for the publicly traded Mexican defined contribution pension funds.

Suggested Citation

  • Oscar V. De la Torre Torres & Evaristo Galeana Figueroa & María Isabel Martínez Torre Enciso & Dora Aguilasocho Montoya, 2015. "A minimum variance benchmark to measure the performance of pension funds in Mexico," Contaduría y Administración, Accounting and Management, vol. 60(3), pages 593-614, julio-sep.
    • Handle: RePEc:nax:conyad:v:60:y:2015:i:3:p:593-614
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