International Diversification of Pension Funds Using the Cointegration Approach: the Case of Poland
AbstractIn this study we present the method of portfolio selection suitable for long term investments and thus applicable to the pension funds industry. The choice of the portfolio is based on two stages. In the first one we identify the long-run co-movement using the cointegration analysis to eliminate the assets sharing common trends. Then, using the constrained set of assets from the first stage, we optimise the portfolio employing the Modern Portfolio Theory (MPT). By comparing the out-of-sample results we finally conclude that the portfolio supported by cointegration analysis performs significantly better than the one based solely on MPT. To illustrate this idea we identify the potential of the international diversification of the Polish Open Pension Funds (OPF) portfolios. We argue that the current OPF asset allocation exhibits insufficient foreign diversification (home bias) so it is desirable to change the regulatory policy to enable OPF investing abroad more.
|Journal series||Transformations in Business & Economics, ISSN 1648-4460, (A 20 pkt)|
|Publication size in sheets||0.6|
|Keywords in English||portfolio theory, cointegration analysis, pension funds, international diversification, Central and Eastern European countries|
|ASJC Classification||; ; ; ;|
|Score||= 20.0, 27-11-2019, ArticleFromJournal|
|Publication indicators||: 2017 = 0.516; : 2017 = 1.112 (2) - 2017=0.74 (5)|
|Citation count*||3 (2019-12-15)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.