Should the Indonesian pension funds invest abroad?

Kariastanto, Bayu (2011): Should the Indonesian pension funds invest abroad?

Abstract

Currently, the Indonesian pension fund is prohibited from investing in international assets. In this paper, I quantitatively investigate the benefit and/or the cost, if any, caused by this constraint. Standard mean-variance techniques will be used along with Monte Carlo simulation to check the robustness of the findings. Under various assumptions, including international assets in the pension fund’s portfolio could potentially aid pension funds to have higher returns and accumulated wealth. Accordingly, the findings suggest possible reform to lessen these restrictions. Given the controversy over international diversification, a reasonable compromise that would help capture many of the potential benefits for risk-averse investors could be to create a ceiling of 20 percent for international assets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Pension Fund; International Diversification; Asset Allocation; Hypothetical Worker; Indonesia
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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