IDEAS home Printed from https://ideas.repec.org/p/chb/bcchwp/248.html
   My bibliography  Save this paper

Quantifying the Costs of Investment Limits for Chilean Pension Funds

Author

Listed:
  • Solange M. Berstein
  • Rómulo A. Chumacero

Abstract

Since its creation in 1981, Pension Funds Administrators in Chile were not free to choose optimal investment portfolios because of a stringent regulation on investment limits. The diagnosis implicit with the imposition of limits was that the Chilean capital market was not deep and that there was an important demand for funds to finance the expansion of the productive sector. As this regulation entails an inefficient combination of risk and return, this paper quantifies its costs.

Suggested Citation

  • Solange M. Berstein & Rómulo A. Chumacero, 2003. "Quantifying the Costs of Investment Limits for Chilean Pension Funds," Working Papers Central Bank of Chile 248, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:248
    as

    Download full text from publisher

    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_248.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
    2. Christian A.Johnson, 2001. "Value at risk: teoría y aplicaciones," Estudios de Economia, University of Chile, Department of Economics, vol. 28(2 Year 20), pages 217-247, December.
    3. Patricio Arrau & Rómulo Chumacero, 1998. "Tamaño de los Fondos de Pensiones en Chile y su Desempeño Financiero," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(105), pages 205-236.
    4. Robert J. Shiller, 2002. "Indexed Units of Account: Theory and Assessment of Historical Experience," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.),Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 4, pages 105-134, Central Bank of Chile.
    5. Eduardo Walker, 1993. "Desempeño Financiero de las Carteras Accionarias de los Fondos de Pensiones en Chile ¿Ha Tenido Desventajas ser Grandes?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(89), pages 35-76.
    6. Tsong-Yue Lai & Ko Wang & Su Han Chan & Daniel C. Lee, 1992. "A Note on Optimal Portfolio Selection and Diversification Benefits with a Short Sale Restriction on Real Estate Assets," Journal of Real Estate Research, American Real Estate Society, vol. 7(4), pages 493-501.
    7. LeRoy,Stephen F. & Werner,Jan, 2014. "Principles of Financial Economics," Cambridge Books, Cambridge University Press, number 9781107024120, February.
    8. Eduardo Walker, 1993. "Desempeño Financiero de las Carteras de Renta Fija de los Fondos de Pensiones en Chile. ¿Ha Tenido Desventajas Ser Grandes?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(89), pages 1-34.
    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. Cristian Escudero & José L. Ruiz, 2021. "Life insurance companies’ investment abroad and the internal rate of return on Chilean annuities," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(4), pages 688-709, October.
    2. Pereda Javier, 2007. "Estimación de la Frontera Eficiente para las AFP en el Perú y el Impacto de los Límites de Inversión: 1995-2004," Working Papers 2007-009, Banco Central de Reserva del Perú.
    3. Solange M. Berstein & Rómulo A. Chumacero, 2012. "VaR limits for pension funds: an evaluation," Quantitative Finance, Taylor & Francis Journals, vol. 12(9), pages 1315-1324, May.
    4. Diego Jara & Carolina Gómez & Andrés Pardo, 2005. "Análisis de eficiencia de los portafolio pensionales obligatorios en Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 23(49), pages 192-239, December.
    5. Claudio Raddatz & Sergio Schmukler, 2013. "Deconstructing Herding: Evidence from Pension Fund Investment Behavior," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(1), pages 99-126, February.
    6. Raddatz, Claudio & Schmukler, Sergio L., 2008. "Pension Funds And Capital Market Development:How Much Bang For The Buck?," Policy Research Working Paper Series 4787, The World Bank.
    7. repec:bdr:ensayo:v::y:2005:i:49:p:192-239 is not listed on IDEAS
    8. repec:idb:brikps:7677 is not listed on IDEAS
    9. Greg Brunner & Richard Hinz & Roberto Rocha, 2008. "Risk-based Supervision of Pension Funds : Emerging Practices and Challenges," World Bank Publications - Books, The World Bank Group, number 6419.

    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. Solange Berstein & Rómulo Chumacero, 2005. "Cuantificación de los Costos de los Limites de Inversión para los Fondos de Pensiones Chilenos," Working Papers 3, Superintendencia de Pensiones, revised Apr 2005.
    2. Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds’ structure, performance and investments: cross-country evidence," MPRA Paper 14753, University Library of Munich, Germany.
    3. Solange M. Berstein & Rómulo A. Chumacero, 2012. "VaR limits for pension funds: an evaluation," Quantitative Finance, Taylor & Francis Journals, vol. 12(9), pages 1315-1324, May.
    4. Luis Raúl Rodríguez-Reyes & Angel Samaniego & Mireya Pasillas, 2021. "Strategies in Retirement Fund Selection in the Mexican Retirement Market 1997-2018," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(TNEA), pages 1-16, Septiembr.
    5. Salvador Valdés & Peter Diamond, "undated". "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
    6. Dingshi Tian & Zongwu Cai & Ying Fang, 2018. "Econometric Modeling of Risk Measures: A Selective Review of the Recent Literature," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201807, University of Kansas, Department of Economics, revised Oct 2018.
    7. Boyle, Glenn & Irwin, Tim, 2004. "Valuing Managerial Flexibility: A Child's Guide to Real Options," Working Paper Series 3876, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    8. Strzalecki, Tomasz & Werner, Jan, 2011. "Efficient allocations under ambiguity," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1173-1194, May.
    9. Ceci, Vladimiro & Manganelli, Simone & Vecchiato, Walter, 2002. "Sensitivity analysis of volatility: a new tool for risk management," Working Paper Series 194, European Central Bank.
    10. Fermanian, Jean-David & Scaillet, Olivier, 2005. "Sensitivity analysis of VaR and Expected Shortfall for portfolios under netting agreements," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 927-958, April.
    11. repec:dau:papers:123456789/10190 is not listed on IDEAS
    12. Humphery-Jenner, M., 2011. "Anti-takeover Provisions as a Source of Innovation and Value Creation," Discussion Paper 2011-045, Tilburg University, Center for Economic Research.
    13. Young Kim & Rosella Giacometti & Svetlozar Rachev & Frank Fabozzi & Domenico Mignacca, 2012. "Measuring financial risk and portfolio optimization with a non-Gaussian multivariate model," Annals of Operations Research, Springer, vol. 201(1), pages 325-343, December.
    14. Robert J. Shiller, 2006. "Designing Indexed Units of Account," Chapters, in: Lawrence R. Klein (ed.), Long-run Growth and Short-run Stabilization, chapter 11, Edward Elgar Publishing.
    15. Borgonovo, Emanuele & Gatti, Stefano, 2013. "Risk analysis with contractual default. Does covenant breach matter?," European Journal of Operational Research, Elsevier, vol. 230(2), pages 431-443.
    16. Guillaume Carlier & Rose-Anne Dana & Alfred Galichon, 2012. "Pareto efficiency for the concave order and multivariate comonotonicity," SciencePo Working papers Main hal-01053549, HAL.
    17. János Vincze, 2019. "Money Illusion: Reconsidered in the Light of Cognitive Science," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(2), pages 191-215, June.
    18. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    19. Charles-Olivier Amédée-Manesme & Fabrice Barthélémy, 2022. "Proper use of the modified Sharpe ratios in performance measurement: rearranging the Cornish Fisher expansion," Annals of Operations Research, Springer, vol. 313(2), pages 691-712, June.
    20. Marcelo Fernandes & Eduardo Mendes & Olivier Scaillet, 2015. "Testing for symmetry and conditional symmetry using asymmetric kernels," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 67(4), pages 649-671, August.
    21. Bloise, Gaetano & Polemarchakis, Herakles & Vailakis, Yiannis, 2017. "Sovereign debt and incentives to default with uninsurable risks," Theoretical Economics, Econometric Society, vol. 12(3), September.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

    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:chb:bcchwp:248. 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: Alvaro Castillo (email available below). General contact details of provider: https://edirc.repec.org/data/bccgvcl.html .

    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.