40 Pages Posted: 25 Apr 2009
Date Written: April, 24 2009
Greek public pension funds can invest up to 23% into risky assets and are not allowed to invest outside Greece. This paper seeks to investigate the costs of investment constraints on pension fund portfolios. In particular we try to quantify the losses that portfolios suffer due to under-diversification and sub-optimal asset allocation. We find that the high concentration of Greek equity portfolios imposes a substantial return and utility loss which is further increased when the lack of international diversification is taken into account. Restricting the weight of equities to 23% of the total portfolio, leads to sub-optimal asset allocation that costs as much as 2% (3%) per annum compared to a balanced domestic (global) benchmark.
Keywords: Portfolio Efficiency, Idiosyncratic Risk, Asset Allocation, Utility Loss, Pension Funds.
JEL Classification: G10, G11, G18, G23
Suggested Citation: Suggested Citation
Angelidis, Timotheos and Tessaromatis, Nikolaos, The Efficiency of Greek Public Pension Fund Portfolios (April, 24 2009). Available at SSRN: https://ssrn.com/abstract=1394457 or http://dx.doi.org/10.2139/ssrn.1394457