Pension Funds' Performance in Strongly Regulated Industries in Central Europe: Evidence from Poland and Hungary

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10076.pdf Non-Technical SummaryFollowing the proposal of the World Bank in the end of the 1990s, a number of Central European countries have extended their pay-as-you-go pension systems by a capital-market-based element in the form of privately managed pension funds. As a result of these reforms, new type of financial institutions -defined contribution pension funds -have been introduced in these countries. To guarantee the security of future pensions, governments imposed regulation on the investment practices and performance of the pension funds. This approach to regulation differs from the traditional "prudent man" rules applied in a number of developed countries. This paper presents an analysis of pension funds' performance in Poland and Hungary, two Central European countries characterized by strong regulation of their private pension fund industries. The paper extends the literature which has so far mostly focused on performance of pension fund industries facing no or only limited regulation. We find that the performance of pension funds in the two studied countries differs. While we do not find convincing evidence of outperformance by Polish pension funds, we find strong evidence of underperformance by Hungarian pension funds. The results are robust to time-variation. The paper considers possible explanations behind these findings. The results of the paper should be of interest for policy-makers seeking to achieve optimal performance of the pension systems and academics in the research area of pension funds. AbstractThis paper presents an analysis of pension funds' performance in Poland and Hungary, two Central European countries characterized by strong regulation of their private pension fund industries. Thus, the paper extends the literature which has so far mostly focused on performance of pension fund industries facing no or limited regulation. We find that the performance of pension funds in the two studied countries differs. While we do not find convincing evidence of outperformance by Polish pension funds, we find strong evidence of underperformance by Hungarian pension funds. The results are robust to time-variation. The paper considers possible explanations behind these findings. The results of the paper should be of interest for policy-makers seeking to achieve optimal performance of the pension systems and academics in the research area of pension funds.

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

“…The calculations made allowed us to draw the conclusion about the phenomenon of very weak, though statistically significant, performance repeatability achieved by open pension funds operating on the Polish market. The analysis of empirical data also confirms previous local and international results (Bohl, Lischewski, & Voronkova, 2011;Draženović, Hodžić, & Maradin, 2019;Kurach, 2019) indicating that the rates of return recorded by individual entities become increasingly similar over time. The study highlighted the clear advantages of the methods adopted to study distribution dynamicsabove all, the ease of interpretation of the results obtained.…”

Diversification Opportunities through Fixed-income Managed Funds in Eastern Europe

“…In investigating a market related to mutual funds, that of pension funds, Bohl et al (2011) examine both Polish and Hungarian pension funds, concluding that while Polish exhibit no significant outperformance, Hungarian ones are clearly underperforming. Lieksnis (2010), examining a sample of Latvian and Estonian secondpillar pension funds, finds that outperformance is not achievable, while he discovers that fund managers do not exhibit either market timing or more notably stock selection ability.…”