Defined Benefit Pension Plan Liabilities and International Asset Allocation

33 Pages Posted: 11 Feb 2008

See all articles by Tongxuan Yang

Tongxuan Yang

University of Pennsylvania - Insurance & Risk Management Department

Date Written: October 2003

Abstract

Despite the integration of international capital markets and the relaxation of capital controls, U.S. defined benefit pension plans do not sufficiently diversify their assets across international holdings. In this paper, we explore whether incorporating liabilities in the asset allocation decision can help explain pension plans' home bias. We find that incorporating pension liabilities proves not to explain pension plan home bias in the case when returns are nominal. Furthermore, when we focus on real returns, incorporating pension plan liabilities makes the home bias puzzle worse. The fact remains that U.S. defined benefit pension plans could benefit substantially from more international investment.

Suggested Citation

Yang, Tongxuan, Defined Benefit Pension Plan Liabilities and International Asset Allocation (October 2003). Michigan Retirement Research Center Research Paper No. WP 2003-058, Available at SSRN: https://ssrn.com/abstract=1092142 or http://dx.doi.org/10.2139/ssrn.1092142

Tongxuan Yang (Contact Author)

University of Pennsylvania - Insurance & Risk Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6365
United States

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