Pension Reform, Investment Restrictions and Capital Markets

Abstract

This Policy Discussion Paper should not be reported as representing the views of the IMF.The views expressed in this Policy Discussion Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Policy Discussion Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Pension reform in several emerging market countries has been associated with rapid growth in assets under management and a positive impact on the development of local securities markets. However, limitations on such development may lead to asset price distortions, bubbles, and concentration of risks. Regulatory limits on pension fund investments are assessed in light of these risks and developments in modern portfolio theory. A gradual but decisive loosening of restrictions on equity and foreign investments is recommended. Changes in these regulations ought to be coordinated with measures designed to foster the development of local securities markets as well as with macroeconomic policies.

Tunisian corporate bond market liquidity: a qualitative approach

“…Based on their perceptions of corporate bond market access, the respondents believe that the Tunisian regulatory framework protects the subscribers with its rigidity and robustness (documentation complexity), on the one hand, and makes it impossible for some investors (liquidity needs) to access the corporate bond market, on the other, given the long waiting times for the issuance of a visa. This is confirmed by Roldos (2004) and Luengnaruemitchai and Ong (2005) for emerging markets.…”

“…The executive director of the Reserve Bank of India, for instance, admits that "there is a recognized need for compulsory trade reporting to a central authority by all participants, and a structural clearing and settlement system for corporate debt" (BIS, 2005). Roldos (2004) links the difficulty of accessing the market to the high costs of issuing corporate bonds and a long waiting period for issuers to obtain the approval of the authorities. Luengnaruemitchai and Ong (2005) affirm that the issuance process and the associated costs are obstacles to the development of Hong Kong's secondary corporate bond market.…”

“…Roldos (2004) links the difficulty of accessing the market to the high costs of issuing corporate bonds and a long waiting period for issuers to obtain the approval of the authorities. Luengnaruemitchai and Ong (2005) affirm that the issuance process and the associated costs are obstacles to the development of Hong Kong’s secondary corporate bond market.…”

Pension funds and IPO pricing. Evidence from a quasi-experiment

“…One stream of research finds that the investment activity of pension funds is beneficial to equity markets by promoting liquidity, boosting demand for capital-market instruments and innovation, and contributing to the development of capital markets on the whole (Davis, 1998;Walker & Lefort, 2000). Conversely, Singh (1996) and Roldos (2004) suggest that institutional investors might exert a negative influence on the capital markets in emerging economies.…”

“…In particular, private pension funds' investments contribute to asset price distortions, bubbles, and concentration of risks (Roldos, 2004). In the context of the Polish Pension Reform of 1999, Zalewska (2006) shows that the benefits of pension funds' investment in the home market are only short-term and revert in the long run.…”