Optimal asset allocation for pension funds in the Republic of Korea (ROK ): risk-adjusted analysis

This thesis examines various asset allocation schemes for retirement pension funds in the Republic of Korea (ROK), particularly constrained and risk-adjusted asset allocation schemes and so-called ‘target risk’ and ‘target return’ schemes. This thesis shows that different asset allocation techniques have a significant impact on the optimal weights of different asset classes such as growth and defensive assets for optimal pension portfolios. The thesis also demonstrates that the proposed optimal asset allocation typically deviates significantly from the actual allocation of the ROK’s pension funds. The thesis also examines the performance of different asset allocation schemes in the presence of skewness and excess kurtosis for returns as well as non-linear dependence across different asset classes. Thus, this thesis considers the entire distribution of the returns that enables us to conduct a risk-adjusted performance analysis. Finally, the author relates the results to recent regulatory changes in the ROK with regards to the asset allocation for pension funds.