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Reforming Pension Funds in Sri Lanka: International Diversification and the Employees’ Provident Fund KUMARA, Ajantha Sisira PFAU, Wade D. International Diversification Utility Maximization EPF Hypothetical Worker Modern Portfolio Theory Sri Lanka The Employees’ Provident Fund (EPF) of Sri Lanka is a defined-contribution pension fund whose pooled asset holdings consist mainly of local government bonds. Regulations prohibit international diversification, and this paper aims to quantify the extent of the potential harms, if any, caused by this constraint. To improve the robustness of the findings, we use two distinct methodologies. These include traditional mean-variance analysis from modern portfolio theory, and Monte Carlo simulations that estimate the distribution of wealth accumulated at retirement from the contributions of a hypothetical worker. Both methods produce qualitatively and quantitatively similar results: workers with risk aversion varying from aggressive to conservative will be better served by allowing international diversification. The results are particularly persuasive for the second approach. The EPF fund managers will likely behave fairly conservatively toward risk, which suggests that around half of the fund assets should be invested abroad. JEL classification codes: G11, H55, G23 経済学 / Economics GRIPS Policy Research Center 2010-09-01 eng technical report AM https://doi.org/10.24545/00001034 https://grips.repo.nii.ac.jp/records/1034 10.24545/00001034 https://ideas.repec.org/p/ngi/dpaper/10-13.html https://ideas.repec.org/p/ngi/dpaper/10-13.html GRIPS Discussion Papers DP10-13 https://grips.repo.nii.ac.jp/record/1034/files/DP10-13.pdf application/pdf 296.1 kB