Icelandic pension funds: Potential benefits of increased international diversification : An empirical analysis for the period from 2004 to 2016
The Icelandic pension system has grown significantly in the past years. Following the financial crisis in 2008, discussion about the pension funds’ investments became more apparent, with the focus being on foreign investments and whether they should be increased. Evidence shows that a better risk-return relationship can be realized with international diversification. The aim of this research was to analyse the effects of international diversification within selected Icelandic pension funds, over the period from 2004 to 2016. The research used different levels of foreign investments to capture the effect of international diversification over the research period. Furthermore, optimal portfolios were estimated to identify the maximum benefits of higher levels of foreign investments. The results indicate that a better risk-return relationship can be achieved within the Icelandic pension funds by increasing the level of foreign investments within their portfolios. The findings of the research argue that the potential benefits of international diversification are not fully exploited within the Icelandic pension funds.
Viðskiptafræði, Lífeyrissjóðir, Fjárfestingar, Business administration, Pension trusts, Investments
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