Home bias and stock market development. The Polish experience
AbstractPension reform has become a major policy issue for both developed and developing countries in recent years. In developing countries the impact of these reforms on the development of their financial markets is critical. However, the initial expectations that pension reforms in developing countries would bring broad benefits and result in faster market development have not materialised. A particular problem has been that governments have imposed restrictions on the freedom of pension funds’ investment decisions. In particular, they have a tendency to enforce home bias in investment behaviour. This paper provides a non-technical introduction to home bias and its role in stock market development, and uses the Polish experience as a case study. It discusses the main arguments for portfolio diversification, the primary side effects that emerge from locking funds into underdeveloped equity markets, and highlights the problems the Polish pension funds face as a result of the “enforced” home bias policy of the Polish authorities. The findings support the view that enforced home bias has a negative impact on the local stock market development, on the performance of pension reform.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 05/136.
Length: 35 pages
Date of creation: Nov 2005
Date of revision:
pension reforms; home bias; stock market development; emerging markets;
Find related papers by JEL classification:
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-FIN-2005-12-14 (Finance)
- NEP-FMK-2005-12-14 (Financial Markets)
- NEP-TRA-2005-12-14 (Transition Economics)
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