Castaneda, PabloRudolph, Heinz P.2012-03-192012-03-192011-08-01https://hdl.handle.net/10986/3537The passivity of the demand for pension products is one of the striking features of mandatory pension systems. Consequently, the provision of multiple investment alternatives to households (multifund schemes) does not ensure that contributions are invested efficiently. In addition, despite the theoretical findings that short term return maximization is not conductive to long-term return maximization, the regulatory framework of pension fund management companies puts excessive emphasis on short-term maximization. Therefore, it is not obvious that typical regulatory framework of pension funds is conductive to optimal pensions. By establishing a set of default options on investment portfolios, this paper proposes a mechanism to align the incentives of the pension fund management companies with the long-term objectives of the contributors. The paper provides a methodology, which is subsequently applied to Colombia.CC BY 3.0 IGOASSET CLASSASSET CLASSESASSET MANAGEMENTASSET PORTFOLIOASSET PRICEASSET PRICESBANK DEPOSITSBANKING CRISESBENEFICIARIESBOND INSTRUMENTSBOND YIELDBOND YIELD CURVEBROKERAGECAPITAL FLOWSCAPITAL MARKETCAPITALIZATIONCIVIL CODECIVIL CODESCOMMON LAWCOMPETITIVE FRAMEWORKSCOMPETITIVE MARKETSCONFLICTS OF INTERESTCONFLICTS OF INTERESTSCONSUMPTION SMOOTHINGCORPORATE BONDCREDIT RISKCURRENCY RISKDECLINE IN INVESTMENTSDEPOSITSDERIVATIVESDEVELOPING COUNTRIESDIVERSIFIED PORTFOLIODIVERSIFIED PORTFOLIOSDOMESTIC CAPITALDOMESTIC CAPITAL MARKETDOMESTIC EQUITIESECONOMIC DEVELOPMENTEMERGING ECONOMIESEMERGING MARKETEMERGING MARKETSEQUITIESEQUITY INDEXEQUITY INSTRUMENTSEQUITY INVESTMENTEQUITY INVESTMENTSEQUITY RETURNSEQUITY VALUEEXCHANGE RATEFAIR VALUATIONFIDUCIARY RESPONSIBILITYFINANCIAL ASSETSFINANCIAL INFRASTRUCTUREFINANCIAL INSTITUTIONSFINANCIAL MARKETSFIXED INCOMEFIXED INCOME MARKETSFIXED INCOME PORTFOLIOFOREIGN CURRENCYFOREIGN EQUITIESFOREIGN EQUITYFREE ASSETFREE ASSETSFUND MANAGEMENTFUND MANAGERFUND MANAGERSFUTURESFUTURES MARKETFUTURES MARKETSGLOBAL CAPITALGLOBAL CAPITAL MARKETSGLOBAL MARKETSGOVERNMENT BONDGOVERNMENT BONDSGOVERNMENT SECURITIESHEDGESHIGH YIELD BONDSHOLDINGHUMAN CAPITALILLIQUID MARKETSINCOME INSTRUMENTSINCOME LEVELINDEXED BONDINDEXED BONDSINDIVIDUAL INVESTORINFLATIONINFLATION RISKSINSTITUTIONAL INVESTORINSTITUTIONAL INVESTORSINSTRUMENTINSURANCEINSURANCE COMPANYINTEREST RATEINTERNATIONAL BANKINTERNATIONAL DIVERSIFICATIONINTERNATIONAL MARKETINTERNATIONAL MARKETSINVESTINGINVESTMENT ALTERNATIVESINVESTMENT DECISIONINVESTMENT DECISIONSINVESTMENT FUNDINVESTMENT GUIDELINESINVESTMENT HORIZONINVESTMENT HORIZONSINVESTMENT IN STOCKSINVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITYINVESTMENT POLICYINVESTMENT PORTFOLIOINVESTMENT PORTFOLIOSINVESTMENT REGULATIONINVESTMENT REGULATIONSINVESTMENT RESTRICTIONSINVESTMENT STRATEGIESINVESTMENT STRATEGYINVESTMENTS IN EQUITIESISSUANCEJUDICIAL COURTSLIABILITYLIFE INSURANCELIFE INSURANCE COMPANIESLIFE INSURANCE COMPANYLIQUID ASSETSLIQUIDATIONLIQUIDITYLIQUIDITY PREMIUMLIQUIDITY RATIOLIQUIDITY RISKLOCAL INVESTORSLOCAL MARKETLOCAL MARKETSLONG-TERM INTERESTLONG-TERM INTEREST RATESLONG-TERM INVESTMENTLONG-TERM INVESTORLONG-TERM INVESTORSMANDATORY PENSION FUNDMARKET COMPETITIONMARKET CONDITIONSMARKET DEVELOPMENTMARKET INDICESMARKET PLAYERSMARKET RISKMARKET RISKSMARKET SHAREMARKET STRUCTUREMINORITY SHAREHOLDERSMORTGAGEMORTGAGE BONDSMUTUAL FUNDSOPTIMAL INVESTMENTOPTIONS MARKETPENSIONPENSION FUNDPENSION FUND INVESTMENTPENSION FUND INVESTMENTSPENSION FUNDSPENSION REFORMSPENSION SYSTEMPENSION SYSTEMSPENSIONSPORTFOLIOPORTFOLIO ALLOCATIONSPORTFOLIO INVESTMENTPORTFOLIO MANAGEMENTPORTFOLIO QUALITYPORTFOLIO RISKPUBLIC DEBTPUBLIC FUNDSPURCHASING POWERRATES OF RETURNREAL INTERESTREAL INTEREST RATESREGULATORY AUTHORITYREGULATORY FRAMEWORKREINVESTMENTREINVESTMENT RISKREINVESTMENT RISKSRESERVERETURNRETURN ON ASSETSRETURNSRISK AVERSIONRISK MANAGEMENTRISK PROFILERISK PROFILESRISKY ASSETRISKY ASSETSSECURITIESSECURITIES MARKETSSHAREHOLDERSHAREHOLDERSSHORT-TERM ASSETSHORT-TERM ASSETSSHORT-TERM BONDSHORT-TERM CAPITALSHORT-TERM INSTRUMENTSSHORT-TERM TREASURY BILLSHORT-TERM TREASURY BILLSSINGLE ASSETSOVEREIGN BONDSSOVEREIGN DEBTSOVEREIGN DEFAULTSTOCK MARKETSTOCK RETURNSTOCK RETURNSSTOCKSSUPERVISORY AUTHORITYTAXTRADINGTRANSACTIONTRANSPARENCYTREASURYUNDERDEVELOPED CAPITAL MARKETSUNDERLYING ASSETVALUATIONWorld Bank10.1596/1813-9450-5775