Investor Behavior and Fund Performance under a Privatized Retirement Accounts System: Evidence from Chile

Published: 2009
Project ID: UM09-17


In the U.S. and in Chile, there have been heated debates about the relative merits of a decentralized privatized pension system relative to a more traditional social security system. One criticism of a privatized system is that consumers are not sufficiently financially literate to make decisions in selecting among funds. On the firm side, there are concerns that pension funds can engage in anticompetitive behavior and may be able to take advantage of consumers’ lack of knowledge by charging them high fees and account maintenance charges. This project will analyze the key determinants of consumers’ choice of pension fund and of pension fund performance using a longitudinal household dataset gathered in 2002 and 2004 in Chile combined with an administrative dataset that covers 25 years on fund choices. This project will also provide evidence on how mutual funds set their fees so as to effectively target different segments of the market.