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Draft 10/20/2002 Comments Welcome Defined Benefit Pension Plan Liabilities and International Asset Allocation

By Tongxuan Yang


Preliminary: Please do not quote. Despite the integration of international capital markets and the relaxation of capital controls, U.S. defined benefit pension plans do not diversify internationally enough. In this paper, we explore whether incorporating liabilities in the asset allocation decision can help explain pension plans ’ home bias. The empirical analysis is from the perspective of a U.S. investor for the period 1970 to 1996 following prior literature. Incorporating pension liabilities proves not to explain pension plan home bias in the case that returns are nominal. Furthermore, when we focus on real returns, incorporating the liabilities makes the home bias puzzle worse

Year: 2011
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