Risk Analysis of Pension Fund Investment Choices

Abstract

Using a sample of monthly asset classes from January 1990 to December 2016, we provide a comprehensive and more consistent approach to analyse and compare the risk-return relationships of Australian superannuation investment options. 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 balance 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.