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.