Pension reform and capital market development in Central and Eastern European countries

Abstract

The paper provides new empirical evidence for the connection between pension reform and capital market development using a sample of ten Central and Eastern European countries. Using a single equation Error Correction Model, the results confirm the existence of a strong positive short-term effect, as well as a lower magnitude positive long-term effect of the pension funds' assets on the market capitalisation.

Individual Pension Funds and Capital Market Development in Turkey

“…In this regard, studies have generally focused on the impact of the growing private pension funds on the economic growth and the development of capital markets Pension funds as institutional investors are long-term sophisticated investors, with better knowledge, compared to the individual investors. In this regard, it is expected that the pension funds contribute to the development of capital markets by capital accumulation, fund raising, increasing liquidity, reducing the volatility and increasing financial innovation in the capital markets (Enache et al, 2015).…”

Interest rate, capital market and pensions management: Lessons from Nigeria

“…This study has examined the development in the Nigerian pension industry relative to stock market and interest rate in line with the argument in Vittas (1999a). Relying on theoretical framework in Borsch-Supan et al (2004) and Enache et al (2015) recursive model was employed, albeit for data challenge, to trace the link between the management of interest rate and the stock market and then pension asset development. GDP was effective as a control variable in the model, impacting both the stock market and pension assets in the two respective models.…”

“…While there are preponderant evidence of link from pension funds to capital market growth (Enache et al, 2015;Mailos, 2012;Meng and Pfau, 2010), little evidence is available of the reverse and its interaction with interest rate in the literature, which is the contest of this study. Catalan et al (2000) find a bidirectional positive correlation between contractual savings (pensions and insurance) assets as a ratio of GDP and both market capitalization and value traded in 26 OECD countries.…”

“…Wang (2004) did a nonparametric study on China's pension reform and capital market development and found a correlation between a funded pension system's boost of the capital market and existence of appropriate financial infrastructure and effective financial regulations. Enache et al (2015) use the single equation error correction model (ECM) to investigate the impact of pension funds on capital market in a sampled ten (10) Central and Eastern European Countries from 2001 to 2010. The finding provides further evidence of short term impact and lower magnitude long term impact on market capitalization.…”

“…The framework is developed from Borsch-Supan et al (2004)'s study of capital market effects of population aging and pension reform, with spillover effect on productivity and growth in continental Europe-France, Germany and Italy, using overlapping generation (OLG) model. Closely too, the work follows Enache et al (2015)'s single equation ECM model adopted to estimate the short and long run impact of pension funds on market capitalization in a sample of 10 Central and Eastern European countries.…”