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Pension reform, institutional investors’ growth and stock market development in the developing countries: does it function?

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Abstract

In this paper, we evaluate an empirical link between recent institutional assets’ growth, institutional behaviour and stock market performance in the developing countries. Using the GMM technique on the panel of eight Central and Eastern European (CEE) developing countries over the period of 1995-2006, our results indicate that institutional development exerts a robust and significant impact on the securities markets’ growth in the developing countries. In particular, we find that institutional investors contribute to the greater activity of the emerging capital markets and this effect is a result of higher demand for the local securities induced by these institutions. In addition, in countries where the institutional investors actively participate in the corporate governance, their presence possibly reduces the cost of capital for firms and also positively influences the stock market capitalization. Our findings suggest that the pension reform has contributed significantly to the institutional development and stock market growth in the CEE countries.

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Bibliographic Info

Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 67.

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Length: 36
Date of creation: 2009
Date of revision:
Handle: RePEc:nbp:nbpmis:67

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Keywords: capital market development; capital market reforms; financial structure; institutional investors; pension reform;

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Cited by:
  1. Milos Laura Raisa, 2012. "Spillover Effects Of Pension Funds On Capital Markets. The Eu-15 Countries Case," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 164-170, December.
  2. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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