Comovement among returns of the private Chilean pension system

Abstract

The measurement of comovement among economic variables is key in several areas of economics and finance. This article examines the comovement among Pension Fund Administrators (AFPs) in the Chilean private pension system from 2005 to 2016. We use several statistical methods to assess the comovement among the returns during this period. We found evidence of strong comovement among the returns of all AFPs; the higher the percentage of risk rate of the investment instrument, the higher the comovement was. The introduction of a new AFP in 2010 did not change the comovement patterns. The comovement analysis study shows that the quality attributes of the products offered by the AFPs are homogeneous, supporting the idea that concentrated markets with homogeneous products could incentivize tacit collusive behavior, which could distort the functioning of the pension market, thereby affecting the aggregate well-being of workers.

Keywords:

• Comovement
• pension system
• time series
• correlation
• returns

JEL Classifications:

• H55
• C22
• C18

Notes

No potential conflict of interest was reported by the authors.

1 In 1994 there were 21 AFPs, a figure that dropped to 5 AFPs in 2008. Since the 2008 reform, only one new AFP has entered the system.

2 The Herfindahl Hirschman Index (HHI) for January 2007 was 0.20, while the C3 index was 67% and the C4 Index was 82%. Source: Authors’ own elaboration based on data published at http://www.spensiones.cl/.

3 Decreto Ley N${}^{}\text{o}$ 3.500, de 1980; Reglamento del D.L. N${}^{}\text{o}$ 3.500 y D.F.L. N${}^{}\text{o}$ 101, Texto Actualizado a Septiembre 2009. Superintendencia de Pensiones, www.safp.cl.

Additional information

Funding

This work was supported by AC3E [grant number FB-0008].