Annals of Finance

, Volume 9, Issue 3, pp 319–335 | Cite as

Would emerging market pension funds benefit from international diversification: investigating wealth accumulations for pension participants

  • Ajantha Sisira Kumara
  • Wade Donald PfauEmail author
Research Article


In recent years, investment portfolio selection is growing in importance for many emerging market pension funds, as pension reforms replace traditional pay-as-you-go systems with advanced funding systems. Various investment regulations are applied to the funded pensions, particularly in the form of portfolio limits for equities and international assets. With a bootstrap simulation approach, this paper attempts to quantify the impacts on retirement benefits of restricting international assets from the investment portfolios of emerging market pension funds. We find that, on average, over half of the pension portfolios of emerging market countries should be in international assets in order to maximize the expected utility of moderate and conservative pension fund participants. More generally, international assets can play a significant role in the investment portfolios for workers with risk aversion varying from aggressive to conservative. With few exceptions, the entire probability distribution of wealth accumulations at retirement could be shifted higher with the inclusion of international assets.


Emerging market pension funds International diversification Bootstrapping Monte Carlo simulations 

JEL Classification

H55 G11 G23 


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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.National Graduate Institute for Policy Studies (GRIPS)TokyoJapan

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