Font Size: a A A

The Research On The Assets Allocation Of Pension Fund Under Inflation

Posted on:2010-05-19Degree:MasterType:Thesis
Country:ChinaCandidate:Y LiFull Text:PDF
GTID:2219360275470448Subject:Finance
Abstract/Summary:PDF Full Text Request
The pension fund which is accumulated before and spent after the retirement usually is the main funding resource for the retiree. Many factors such as reforms, aging, the"only one child"policy and the longevity have made pension a social focus. Inflation erodes the purchase power of the pension that undermines the living standard of the pension holder.Since 1990s, portfolio management has been changed from assets-driven management to liability-driven management. The liability-driven management takes the price of goods in future expanding into account. Based on the concept, the inflation factor should be considered in the pension's assets allocation.This paper reviews the previous study and does a demonstration research on the relation between inflation and assets return. Based on the findings and LDI concept, the paper studied the pension's assets allocation under inflation. Using the inflation-considered Markowitz portfolio model with utility function of pension holders, the paper finds: 1) Stocks, in the long run can be an inflation-hedge tool. They have a sound performance under mild inflation. 2) In terms of inflation, more stocks are allocated in the pension's assets. 3) In the extreme environment, like high inflation and deflation, stocks can not used to hedge the inflation. Instead, bonds and risk-free assets are more proper. 4) Stocks have a positive correlation (0.3) between inflation under most of the scenarios except high inflation. 5) Consuming-sector stocks are more proper in hedge the CPI based inflation. 6) Other factors about inflation may also affect pension's assets allocation. Based on these findings, this paper gives several recommendations in the conclusion. The research had a positive meaning in pension fund's assets allocation.
Keywords/Search Tags:Pension, Inflation, Assets allocation, Correlation
PDF Full Text Request
Related items