Risk Analysis of Pension Fund Investment Choices

Abstract

We provide a comprehensive and more consistent approach to analyse and compare the risk‐return relationships of Australian superannuation investment options for the period January 1990 to December 2016. In estimating the risk profiles of the investment options, we allow for the movement of the asset classes over time by employing a varying coefficient panel estimation technique. We find that while risk increases across different investment options from moderate to aggressive options, using different percentages of identifying a balanced fund does not impact the long‐term risk measurement. We equally find that the risk‐return relationships of investment options are not sensitive to the modelling framework, except for the crisis analysis, in which the Fama‐French five‐factor model provides greater sensitivity.