Pension Reform And Capital Markets: Are There Any (Hard) Links?

The relationship between pension funds and the stock market: Does the aging population of Europe affect it?

“…There is a Email address: malda@unizar.es (M. Alda) substantial literature investigating the impact of institutional investors on stock markets (Catalan, Impavido, & Musalem, 2000;Davis & Hu, 2004;Impavido, Musalem, & Tressel, 2003;Zeng, 2016), although works studying the impact of pension funds in isolation are limited. Walker and Lefort (2002) find a positive link between pension reforms that enhance pension funds and capital market development. Davis (2004) finds a strong correlation between stock market capitalization and the size of the pension fund market.…”

Does funding of pensions stimulate economic growth?

“…Both prices and quantities of long-term financing may be favourably affected, which may in turn raise productive investment and improve resource allocation. For example, focusing on emerging market economies (EMEs), Walker and Lefort (2002) argue that pension funds can decrease the cost of capital via three channels. The first channel is a more developed capital market resulting from pension reforms, thus making the issuing of securities cheaper.…”

Pension fund management and international investment – A global perspective

“…The evidence on the first point is fairly clear, both for capital markets and banks. 41 There is some support for the link to pension funds to capital market development; most is based on Chilean experience, 42 although some work also suggests benefits for a range of EMEs 43 as pension funds are seen to increase the supply of long-term finance, financial innovation, infrastructure modernisation and possibly increase household saving. On the other hand, besides requiring fixed costs of set-up, development of pension and insurance industries, or even domestic capital markets, may be contrary to the comparative advantage of EMEs.…”