Pension funds, large capital inflows and stock returns in a thin market

Abstract

Using unique data about capital flows from the public social security institute ZUS (Zakład Ubezpieczeń Społecznych) to private pension funds OFEs (Otwarte Fundusze Emerytalne) in Poland, we find that their impact, as a group of large institutional investors, on stock returns is statistically significant in short-term but no such effect exists in the long-run. This result is consistent with the temporary price pressure hypothesis of Ben-Rephael et al. (2011). We analyze the capital transfers, in the form of the aggregated pension contributions collected from all employees in the entire Polish economy, from the ZUS to the private pension funds, which further invest this capital on the stock market. The average time for the subsequent reaction of stock prices is found to be 4 days. The trading strategy based on this result generates superior outcomes in comparison with the passive strategy, which further confirms the price impact of capital inflows. Our findings are not only relevant for stock market investors but they also have broader policy implications for stock market regulators and for the national pension regulators.

Transition matrix and stochastic kernel for repeatability assessment of performance of Polish open pension funds

“…Competition between funds was to lead to the exclusion of inefficient entities, the anticipated creation of new funds was to prevent market monopolisation while legal regulations were to diminish the agency problem (Samborski, 2014). Without determining whether the described mechanism actually works (see, for example, (Brzeszczyński, Bohl, & Serwa, 2019;Chybalski, 2008Chybalski, , 2012Witkowska & Kompa, 2017;Witkowska, Kompa, & Mentel, 2019)), it should be noted that for the choice of the entity investing the contributions of the future pensioner, the phenomenon of repeatability and reversal of the pension fund performance is vital. Otherwise, historical rates of return cannot be used to predict future performance, and then the only rational method of choosing a pension fund is a pure random selection.…”

Do investment fund managers behave rationally in the light of central bank communication? Survey evidence from Poland

“…It should also be noted that the Polish stock market became dominated over time by institutional investors, such as investment funds or pension funds etc., which contributed to the reduction of stock price volatility and to stabilisation effects at the Warsaw Stock Exchange (WSE), but at the same time there exists the evidence that they can affect stock returns (see e.g. Bohl and Brzeszczyński (2006), Bohl, Brzeszczyński and Wilfling (2009) and Brzeszczyński, Bohl and Serwa (2019)). 2 Rapid growth of the investment funds industry on the Polish financial market (Filip and Miziołek 2019), i.e. faster than the European Union (EU) average, combined with the intensity of activity of professional institutional investors in Poland, make it further particularly interesting to analyse.…”

“…The capital market in Poland was chosen as a model example of the market that went through a significant transformation to a market economy and which has been growing faster than many other developed and emerging markets. It should also be noted that the Polish stock market became dominated over time by institutional investors, such as investment funds or pension funds etc., which contributed to the reduction of stock price volatility and to stabilisation effects at the Warsaw Stock Exchange, but at the same time there exists the evidence that they can affect stock returns [see Bohl and Brzeszczyński (2006), Bohl et al (2009) and Brzeszczyński et al (2019)] [2]. Rapid growth of the investment funds industry on the Polish financial market (Filip and Miziołek, 2019), i.e.…”

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

“…For instance, market size and market liquidity have been employed by scholars to explain the relationship between capital market development and institutional investors (Aras & Müslümov, 2005; Babalos & Stavroyiannis, 2019; Daradkah & Al-Hamdoun, 2020; Impavido et al, 2003; Zubair, 2015). Similarly, market volatility which measures the rapidity and magnitude of price changes within a given timeframe, has also been used to model capital market development and institutional investors (Alda, 2017; Babalos & Stavroyiannis, 2020; Brzeszczyński et al, 2019; Thomas et al, 2014).…”