Contractual savings or stock market development: which leads?

Abstract

findings Catalan, Impavido, and Musalem study the relationship Africa, and Thailand. They do not present a theoretical between the development of contractual savings (assets framework but do explain how the growth of the of pension funds and life insurance companies) and non-contractual savings sector is thought to promote financial life insurance and the development of stock markets development. (market capitalization and value traded). TheirThe authors find evidence in the data that causality contribution lies in providing time-series evidence on a between institutions and markets either does not exist or, hypothesis that is very popular-but had not been if it exists, runs predominantly from institutions to substantiated-among supporters of fully funded pension markets. To a lesser extent, there is simultaneous systems in which funds invest large shares of their causality between institutions and markets. Furthermore, portfolios in tradable securities (equities, bonds).there is limited evidence that causality runs only from The literature is not clear on its assumption regarding markets to institutions (the only exception seems to be causality between contractual savings and capital market for non-life insurance in developing countries). development. A one-way or two-way relationship is Results seem to support the idea that the development assumed, usually interchangeably; the authors address of institutional investors is likely to promote the growth the question of which leads empirically. They present of market capitalization more than that of value traded. the evidence, including descriptive statistics and the In developing countries, there seems to be no causality results of Granger causality tests, for OECD countries from pension funds to growth in value traded, while and such countries as Chile, Malaysia, Singapore, South there is causality from life and non-life insurance.This paper-a product of the Financial Sector Development Department-is part of a larger effort in the department to study the effects of contractual savings on financial markets. Copies of the paper are available free from the World Bank,

Pension Reform, Investment Restrictions and Capital Markets

“…Indeed, some authors (Davis, 1995;Davis and Steil, 2001) suggest that the development of securities markets is a precondition for the growth of institutional investors. To shed some light on this issue, Catalan, Impavido, and Musalem (2000) run two-way Granger causality tests for 14 OECD countries and 5 emerging markets, with annual data from 1975 to 1997. In several cases the evidence shows that either causality does not exist or where it exists it is predominantly from institutional assets to market capitalization-and not vice versa.…”

Pension Fund Investments and Capital Market Development in Nigeria: The Moderating Role of Inflation

“…The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth (Bijlsma et al, 2018; Davis & Hu, 2008; Gorton & Winton, 2003; Zandberg & Spierdijk, 2013), increasing efficiency in firms by improving governance as institutional owners (Davis, 1996; Thomas & Spataro, 2016). Pension fund’s involvement in financial intermediation plays an influential role in capital market development (Catalan et al, 2000; Madukwe, 2015; Thomas et al, 2014; Rocholl & Niggemann, 2010; Hryckiewicz, 2009; Kim, 2008; Liang & Bing, 2010; Meng & Pfeu, 2010; Walker & Lefort, 2002; Zubair, 2016). Since pension funds generate enormous capital flows, they are expected to have a substantial impact on the stock market: its liquidity, performance, and reduced volatility (Babalos & Stavroyiannis, 2020; Brzeszczyński et al, 2019; Thomas et al, 2014).…”

“…More so, the financial market depends on pension fund investments, and pension provisions are contingent on market performance due to the level of liquidity it provides. Previous empirical studies focusing on OECD countries (Aras & Muslumov, 2005; Babalos & Stavroyiannis, 2019; Catalan et al, 2000; Kim, 2008; Thomas et al, 2014), European countries (Alda, 2017; Enache et al, 2015; Hryckiewicz, 2009; Raisa, 2012), developed and developing countries (Catalan et al, 2000; Impavido et al, 2003) and emerging economies (Walker & Lefort, 2002) have established a relationship between pension fund and capital market and development. Meng and Pfeu (2010) studied countries based on income levels categorized as high and low financial development countries.…”

Voluntary Private Pension Funds and Capital Market Development

“…Some authors argue that pension funds are associated with capital market development by increasing demand for investment instruments, as well as the depth and efficiency of equity and debt markets. In addition, since pension funds are long-term investors and are considered institutional investors, they demand better corporate governance (Catalán, 2004;Catalán et al, 2000). Pension funds may also add to the liquidity of these markets through their trading activity (Davis, 2003;Vittas, 1995Vittas, , 1999Corbo & Schmidt-Hebbel, 2003).…”

“…Some authors argue that pension funds help capital market development by increasing the demand for long-term investment instruments and also by increasing the depth of equity and debt markets, as well as other instruments related to their liquidity and volume. Furthermore, since pension funds are institutional investors with a long-term investment horizon, they are more likely to demand better corporate governance (Stewart et al, 2014;Niggemann & Rocholl, 2010;Catalán, 2004;Catalán et al, 2000, Wahab et al, 2008. They also add to the liquidity of these markets through their trading activity (Davis, 2003;Vittas, 1995;1999) and increase the resistance of capital markets to macroeconomic shocks (Davis, 2003).…”