Implications for Long-Term Investors of the Shifting Distribution of Capital Market Returns

Published in Maurer, R., O. Mitchell, and P. Hammond (Eds.) (2014). Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk. Oxford, UK: Oxford University Press.

Pension Research Council WP 2013-24

Posted: 15 Nov 2013 Last revised: 3 Apr 2020

See all articles by James Moore

James Moore

Pacific Investment Management Company (PIMCO)

Niels Pedersen

Pimco

Date Written: September 1, 2013

Abstract

The paper motivates and describes a regime-switching macro-driven simulation model for the purposes of simulating long horizon asset returns. The paths generated by this model are compared to more common approaches – multivariate normal generators and a block bootstrap simulation. Despite calibration to the same mean and variance in returns, the models display divergent behavior in the tails of long horizon return simulations. Simulations are run through representative defined contribution and defined benefit applications to examine the filtered behavior and draw inferences for future applied research and application.

Suggested Citation

Moore, James and Pedersen, Niels, Implications for Long-Term Investors of the Shifting Distribution of Capital Market Returns (September 1, 2013). Published in Maurer, R., O. Mitchell, and P. Hammond (Eds.) (2014). Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk. Oxford, UK: Oxford University Press., Pension Research Council WP 2013-24, Available at SSRN: https://ssrn.com/abstract=2337195 or http://dx.doi.org/10.2139/ssrn.2337195

James Moore (Contact Author)

Pacific Investment Management Company (PIMCO) ( email )

United States

Niels Pedersen

Pimco ( email )

United States

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