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An empirical analysis of the investment performance of the Chilean pension system

Published online by Cambridge University Press:  01 April 2003

H. FRED MITTELSTAEDT  and
JOHN C. OLSEN
H. FRED MITTELSTAEDT
Affiliation:
Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556. Tel: (574) 631-5087. Fax: (574) 631-5255 (e-mail: [email protected])
JOHN C. OLSEN
Affiliation:
Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556. Tel: (574) 631-5087. Fax: (574) 631-5255 (e-mail: [email protected])
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Abstract

The Chilean national pension system is often viewed as the model for moving from a pay-as-you-go system to a prefunded, individual account system. One measure of its success has been its 12% average real rate of return. This study uses monthly return data to examine the source of these returns and to compare the risk-adjusted returns of the pension system to those of Chilean stock indices, debt instruments, and mutual funds. Tests using the Sharpe ratio and the multi-factor Jensen alpha suggest that the pension returns are consistent with the overall riskiness of the Chilean economy. Based on our findings, neither the structure of the Chilean pension system nor the performance of the fund managers should permit the system to earn abnormally high returns in the future.

Type
Research Article
Information
Journal of Pension Economics & Finance , Volume 2 , Issue 1 , March 2003 , pp. 7 - 24
Copyright
© 2003 Cambridge University Press

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Footnotes

This paper has benefitted from conversations with Carl Ackerman, Douglas Fore, Teresa Ghilarducci, and Mark Warshawsky. It has also benefitted from the comments of participants at the Miami University 2001 Current Pension Policy Issues Conference. In addition, we gratefully acknowledge the financial support of TIAA-CREF and PricewaterhouseCoopers. Also, we wish to thank Cassie Markstahler and Ricardo Mejia for assistance in translation and data entry. Finally, we wish to thank the Superintendencia de Valores y Seguros and the Superintendencia de Administradoras de Fondos de Pensiones for supplying requested data.