Pension funds, large capital inflows and stock returns in a thin market

Brzeszczynski, Janusz, Bohl, Martin T. and Serwa, Dobromil (2018) Pension funds, large capital inflows and stock returns in a thin market. Journal of Pension Economics and Finance. ISSN 1474-7472

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Official URL: http://dx.doi.org/10.1017/S147474721800001X

Abstract

Using unique data about capital flows from the public social security institute ZUS (Zakład Ubezpieczeń Społecznych) to private pension funds OFEs (Otwarte Fundusze Emerytalne) in Poland, we find that their impact, as a group of large institutional investors, on stock returns is statistically significant in short-term but no such effect exists in the long-run. This result is consistent with the temporary price pressure hypothesis of Ben-Rephael et al. (2011). We analyze the capital transfers, in the form of the aggregated pension contributions collected from all employees in the entire Polish economy, from the ZUS to the private pension funds, which further invest this capital on the stock market. The average time for the subsequent reaction of stock prices is found to be 4 days. The trading strategy based on this result generates superior outcomes in comparison with the passive strategy, which further confirms the price impact of capital inflows. Our findings are not only relevant for stock market investors but they also have broader policy implications for stock market regulators and for the national pension regulators.

Item Type: Article
Uncontrolled Keywords: Pension Funds; Stock Market Returns; Capital Flows; Short-run and Long-run Stock Price Behavior
Subjects: N300 Finance
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Paul Burns
Date Deposited: 18 Oct 2018 08:47
Last Modified: 19 Nov 2019 09:04
URI: http://nrl.northumbria.ac.uk/id/eprint/36361

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