Pension Funds and Capital Market Development : How Much Bang for the Buck?

This paper studies the relation between institutional investors and capital market development by analyzing unique data on monthly asset-level portfolio allocations of Chilean pension funds between 1995 and 2005. The results depict pension funds as...

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Bibliographic Details
Main Authors:	Raddatz, Claudio, Schmukler, Sergio L.
Format:	Policy Research Working Paper
Language:	English
Published:	Washington, DC: World Bank 2012
Subjects:	ASSET CLASS ASSET CLASSES ASSET HOLDINGS ASSET MANAGEMENT ASSET MANAGERS ASSET PRICE ASSET PRICES ASYMMETRIC INFORMATION BALANCE SHEETS BANK DEPOSITS BASIS POINTS BOND BOND FUND BOND ISSUANCES BOND MARKETS CAPITAL MARKET CAPITAL MARKET DEVELOPMENT CAPITAL MARKETS CAPITAL RAISING CENTRAL BANK CONTRACTUAL SAVINGS CONTRACTUAL SAVINGS INSTITUTIONS CONTRIBUTION CONTRIBUTION SCHEMES CORPORATE BOND CORPORATE BONDS CORPORATE DEBT CORPORATE DEBT MARKETS CORPORATE GOVERNANCE CORPORATE STOCKS COST OF CAPITAL DEFINED-CONTRIBUTION PENSION DEPOSIT DEVELOPING COUNTRIES DISTRIBUTION OF TRADES DIVIDEND DIVIDENDS DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CAPITAL MARKET DOMESTIC CAPITAL MARKETS DOMESTIC CORPORATE BONDS DOMESTIC DEBT DOMESTIC EQUITIES DOMESTIC EQUITY DOMESTIC GOVERNMENT BONDS DOMESTIC INTEREST RATES DOMESTIC MARKET EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY PRICES EQUITY RETURNS EXCHANGE RATE FINANCIAL ASSETS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FISCAL BURDEN FLOW OF FUNDS FOREIGN ASSETS FOREIGN EQUITIES FOREIGN EQUITY FOREIGN HOLDINGS FOREIGN INSTRUMENTS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN MUTUAL FUNDS FUND MANAGEMENT FUND MANAGERS FUND PERIOD FUTURE PRICES GLOBAL PENSION GOVERNMENT BOND GOVERNMENT BONDS GOVERNMENT PAPER GOVERNMENT SECURITIES HOLDING HOLDINGS ILLIQUID ASSETS ILLIQUID SECURITIES ILLIQUIDITY INCOME INCOME INSTRUMENT INCOME INSTRUMENTS INCOME SECURITIES INSTITUTIONAL INVESTORS INSTRUMENT INTERNATIONAL BANK INTERNATIONAL INVESTORS INVESTING INVESTMENT ALLOCATION INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT FUNDS INVESTMENT INSTRUMENTS INVESTMENT OPPORTUNITIES INVESTMENT PROJECTS INVESTMENT REGIME INVESTMENT REGULATION INVESTMENT REGULATIONS INVESTMENT RESTRICTIONS INVESTMENT STRATEGIES INVESTMENT STRATEGY ISSUANCE LIABILITY LIFE INSURANCE LIFE INSURANCE COMPANIES LIQUID ASSETS LIQUIDATION LOCAL CAPITAL MARKET LOCAL CAPITAL MARKETS LONG-TERM INVESTMENT LONG-TERM INVESTMENTS LONG-TERM INVESTORS LONG-TERM LIABILITIES MARKET LIQUIDITY MARKET TRADING MARKET TURNOVER MARKET VOLATILITY MATURITIES MATURITY MATURITY DATE MATURITY STRUCTURE MORTGAGE MORTGAGE BONDS MUTUAL FUND MUTUAL FUNDS OPEN-END FUNDS OUTSIDE INVESTORS PENSION PENSION FUND PENSION FUND ASSET PENSION FUND ASSETS PENSION FUND INVESTMENT PENSION FUND INVESTMENTS PENSION FUNDS PENSION LAW PENSION REFORM PENSION REFORMS PENSION SYSTEM PENSION SYSTEM REFORM PENSION SYSTEMS PENSIONERS PENSIONS PORTFOLIO PORTFOLIO ALLOCATIONS PORTFOLIO DIVERSIFICATION PORTFOLIO HOLDINGS PORTFOLIO INVESTMENTS PORTFOLIOS PRICE CHANGES PRICE FORMATION PRICE VOLATILITY PRIMARY MARKETS PRIVATE PENSIONS PRIVATE SAVINGS PUBLIC OFFERINGS PUBLIC PENSION PUBLIC SAVINGS PUBLIC SECTOR BONDS RATE OF RETURN REGULATORS REGULATORY FRAMEWORK REGULATORY REQUIREMENT REGULATORY RESTRICTIONS RESEARCH ASSISTANCE RESERVE RETAIL INVESTORS RETIREMENT RETIREMENT SAVINGS RETURN RETURNS RISK PROFILE RISK PROFILES SECONDARY MARKET SECONDARY MARKET LIQUIDITY SECONDARY MARKETS SECONDARY TRADING SECONDARY TRADING MARKETS SEPARATE ASSET SEPARATE ASSET CLASSES SHARE OF ASSETS SHORT-TERM ASSET SHORT-TERM ASSETS SHORT-TERM INSTRUMENTS SHORT-TERM LIABILITIES STANDARD ASSET STOCK MARKET STOCK MARKETS TIME DEPOSITS TRADES TRADING TRADING ACTIVITY TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSITION ECONOMIES TREASURY TREASURY BILLS TURNOVER TURNOVER RATIO TYPES OF INSTRUMENT VALUABLE WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2008/12/10063812/pension-funds-capital-market-development http://hdl.handle.net/10986/6308

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Summary:	This paper studies the relation between institutional investors and capital market development by analyzing unique data on monthly asset-level portfolio allocations of Chilean pension funds between 1995 and 2005. The results depict pension funds as large and important institutional investors that tend to hold a large amount of bank deposits, government paper, and short-term assets; buy and hold assets in their portfolios without actively trading them; hold similar portfolios at the asset-class level; simultaneously buy and sell similar assets; and follow momentum strategies when trading. Although pension funds may have contributed to the development of certain primary markets, these patterns do not seem fully consistent with the initial expectations that pension funds would be a dynamic force driving the overall development of capital markets. The results do not appear to be explained by regulatory restrictions. Instead, asset illiquidity and manger incentives might be behind the patterns illustrated in this paper.

Pension Funds and Capital Market Development : How Much Bang for the Buck?

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