Measures of Performance of Italian Pension Funds

26 Pages Posted: 3 Feb 2010

Date Written: June 2007


The paper investigates the performance of pension funds with reference to recent innovation in Italian regulation. The aim is to evaluate the choice of Italian workers about TFR out-flows in term of risk-return trade off. These out-flows can be regarded as a sort of risk free asset. The reform of complementar pension system forces workers to decide whether to invest these outflows in pension funds or retain their risk-free investment. In the first case they bear the risk of stochastic returns while in the second case they earn a certain rate linked to inflation rate defined by regulation. As an investor in CAPM, the choice of the workers can be regarded in term of risk-premium where the traditional risk-free rate is substituted by TFR rate. Under this assumptions, the traditional measure of risk-adjusted performance, Sharpe and Treynor, are applied to a sample of Italian pension funds. The analysis is also extended to evaluate the ability of Italian manager (Jensen's alpha) and to measure the active risk due to their investment strategy (tracking error volatility).The results suggests the absence of a risk-premium in respect of TFR but also that the pension funds underperform in respect of the market.

Keywords: Pension Funds, TFR, measures of Performance

JEL Classification: G23, G11

Suggested Citation

Gallo, Angela, Measures of Performance of Italian Pension Funds (June 2007). Available at SSRN: or

Angela Gallo (Contact Author)

Cass Business School ( email )

Great Britain

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