Strategic asset allocation

This paper reviews the recent advances in the literature on strategic asset allocation decision. In its strategic asset allocation, a pension fund has several objectives, such as the interest in a good risk-return trade-off. A pension fund has specific liabilities in the form of future pension benefits, which are often indexed to prices or to wage growth. Furthermore a pension fund invests on behalf of its members, who often have large specific investments in human capital and housing. The strategic asset allocation decision concerns the choice of investments across these broad investment categories, and is the major determinant of a pension fund’s investment risk profile. The researchers limit the scope of the paper by taking the optimal plan design and intergenerational risk sharing as given revealed preferences. The paper also reviews the quality of the econometric models of assets returns and the critical parameters for strategic asset allocation.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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