Proceedings of The International Academic Conference on Management and Economics
Mean-Variance Analysis in Pension Fund Investment
The paper studies pension fund investment in both developing and developed countries in order to improve the pension fund management and improve the benefits of pension investment. We use the Modern Portfolio Theory and mean-variance analysis to analyze pension fund investment. We select data of pension fund assets in eight countries: Australia, Canada, United Kingdom and the United State, Indonesia, Kenya, Thailand and Mexico from 2001 to 2017 from the OECD. With a comparison between countries, we find that there is a large gap between developed countries and developing countries. Value of pension assets in developed countries is significantly larger than that of developing countries, where the United States has an overwhelming superiority. However, developing countries have a higher average rate of return, which shows a strong growing tendency. Through analysis in average rate of return and standard deviation, we find that most countries have relatively high average return with relatively high volatility. Based on the mean-variance model, we make portfolios of pension fund assets among countries with different weights on each country and obtain an efficient frontier. We find that it is possible to make an optimal portfolio of pension assets of different countries as a whole to maximize the overall interests at a given risk.
Keywords: Modern Portfolio Theory, mean-variance analysis, pension funds, optimal portfolio, efficient frontier.