Orfalea College of Business
California Polytechnic State University
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San Luis Obispo, CA 93407
Tel: (805) 756-2922
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Institutional Affiliation: California Polytechnic State University
NBER Working Papers and Publications
|October 2010||Portfolio Allocation for Public Pension Funds|
with George Pennacchi: w16456
This paper presents a dynamic model of a public pension fund's choice of portfolio risk. Optimal portfolio allocations are derived when pension fund management maximize the utility of wealth of a representative taxpayer or when pension fund management maximize their own utility of compensation. The model's implications are examined using annual data on the portfolio allocations and plan characteristics of 125 state pension funds over the 2000 to 2009 period. Consistent with agency behavior by public pension fund management, we find evidence that funds chose greater overall asset - liability portfolio risk following periods of relatively poor investment performance. In addition, pension plans that select a relatively high rate with which to discount their liabilities tend to choose risk...
Published: Pennacchi, George & Rastad, Mahdi, 2011. "Portfolio allocation for public pension funds," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(02), pages 221-245, April. citation courtesy of