Institutional investors and securities markets : which comes first?
AbstractInstitutional investors comprise pension funds, insurance companies, and mutual funds. Should a country promote their creation if it lacks well-developed securities markets? The answer to this question, says the author, varies by type of investor. He argues that private pension funds and insurance companies are promoted for their own sake and for their potential economic, fiscal, and financial benefits, whether or not a country already has well-developed securities markets. Mutual funds, by contrast, are unlikely to thrive without strong and well-regulated securities markets. A limited supply of financial instruments should not be a major obstacle to the creation of pension funds and insurance companies. Such institutions build up their financial resources gradually but steadily, giving reforming governments ample time to develop securities markets. More important than the prior development of securities markets is a strong and lasting political commitment to holistic reform: macroeconomic, fiscal, banking, and capital market reform, as well as pension and insurance reform. Institutional investors need to attain critical mass and to be supported by conducive regulations. The author reviews Anglo-American experience since the 1940s. This shows that institutional investors can serve as a countervailing force to commercial and investment banks, helping to stimulate financial innovation, modernize capital markets, enhance transparency and disclosure, strengthen corporate governance, and improve financial regulation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2032.
Date of creation: 31 Dec 1998
Date of revision:
Financial Intermediation; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Infrastructure Finance; Non Bank Financial Institutions; Financial Intermediation; Infrastructure Finance; Infrastructure Finance; Non Bank Financial Institutions; Insurance&Risk Mitigation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brennan, Michael J & Cao, H Henry, 1997.
" International Portfolio Investment Flows,"
Journal of Finance,
American Finance Association, vol. 52(5), pages 1851-80, December.
- Mark Carey S. & Stephen Prowse & John Rea & Gregory Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
- Helmut Reisen, 1997.
"Liberalising Foreign Investments by Pension Funds: Positive and Normative Aspects,"
OECD Development Centre Working Papers
120, OECD Publishing.
- Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
- Hansen, Robert S & Pinkerton, John M, 1982. " Direct Equity Financing: A Resolution of a Paradox," Journal of Finance, American Finance Association, vol. 37(3), pages 651-65, June.
- Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.
- Hansen, Robert S & Torregrosa, Paul, 1992. " Underwriter Compensation and Corporate Monitoring," Journal of Finance, American Finance Association, vol. 47(4), pages 1537-55, September.
- Levine, Ross & Zervos, Sara, 1996.
"Stock markets, banks, and economic growth,"
Policy Research Working Paper Series
1690, The World Bank.
- Salvador ValdÃ©s & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Zvi Bodie, 1991. "Pension Funds and Financial Innovation," NBER Working Papers 3101, National Bureau of Economic Research, Inc.
- Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
- ZsÃ³fia Ãrvai & Geoffrey Heenan, 2008. "A Framework for Developing Secondary Markets for Government Securities," IMF Working Papers 08/174, International Monetary Fund.
- Independent Evaluation Group, 2006. "Pension Reform and the Development of Pension Systems : An Evaluation of World Bank Assistance," World Bank Publications, The World Bank, number 6956.
- Eduardo Siandra, 1999. "La inversión extranjera de los fondos de pensiones y el desarrollo del mercado de capitales doméstico," Documentos de Trabajo (working papers) 0599, Department of Economics - dECON.
- Stoyan Tenev & Chunlin Zhang & Loup Brefort, 2002. "Corporate Governance and Enterprise Reform in China : Building the Institutions of Modern Markets," World Bank Publications, The World Bank, number 15237.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.