Advanced Search
MyIDEAS: Login to save this paper or follow this series

Institutional investors and long-term investment : evidence from Chile

Contents:

Author Info

  • Opazo, Luis
  • Raddatz, Claudio
  • Schmukler, Sergio L.

Abstract

Developing countries are trying to develop long-term financial markets and institutional investors are expected to play a key role. This paper uses unique evidence on the universe of institutional investors from the leading case of Chile to study to what extent mutual funds, pension funds, and insurance companies hold and bid for long-term instruments, and which factors affect their choices. The paper uses monthly asset-level portfolios to show that, despite the expectations, mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns. Thus, the expansion of large institutional investors does not necessarily imply longer-term markets.

Download Info

If 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.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2014/06/16/000158349_20140616101330/Rendered/PDF/WPS6922.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6922.

as in new window
Length:
Date of creation: 01 Jun 2014
Date of revision:
Handle: RePEc:wbk:wbrwps:6922

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Debt Markets; Mutual Funds; Emerging Markets; Deposit Insurance; Non Bank Financial Institutions;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Busse, Jeffrey A., 2001. "Another Look at Mutual Fund Tournaments," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 36(01), pages 53-73, March.
  2. Isabelle Bajeux-Besnainou & James V. Jordan & Roland Portait, 2001. "An Asset Allocation Puzzle: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 1170-1179, September.
  3. Charles W. Calomiris, 2011. "An Incentive‐Robust Programme For Financial Reform," Manchester School, University of Manchester, University of Manchester, vol. 79(s2), pages 39-72, 09.
  4. Claudio Raddatz & Sergio L. Schmukler, 2011. "On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios," NBER Chapters, National Bureau of Economic Research, Inc, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  5. Caprio, Gerard, Jr & Demirguc-Kunt, Asli, 1998. "The Role of Long-Term Finance: Theory and Evidence," World Bank Research Observer, World Bank Group, World Bank Group, vol. 13(2), pages 171-89, August.
  6. Franklin Allen & Douglas Gale, 1976. "Optimal Financial Crises," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Sandeep Kapur & Allan Timmermann, 2005. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(506), pages 1077-1102, October.
  8. Allen, F. & Gale, D., 1991. "Limited Market Participation and Volatility of Asset Prices," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 2-92, Wharton School - Weiss Center for International Financial Research.
  9. Fernando Broner & R. Gaston Gelos & Carmen M. Reinhart, 2003. "When in peril, retrench: Testing the portfolio channel of contagion," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 864, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2005.
  10. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
  11. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2000. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," NBER Working Papers 7590, National Bureau of Economic Research, Inc.
  12. Laura Alfaro & Fabio Kanczuk, 2009. "Debt Maturity: Is Long-Term Debt Optimal?," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 17(5), pages 890-905, November.
  13. Gabrielsen, Alexandros & Marzo, Massimiliano & Zagaglia, Paolo, 2011. "Measuring market liquidity: an introductory survey," MPRA Paper 35829, University Library of Munich, Germany.
  14. Patrick Rey & Joseph E. Stiglitz, 1993. "Short-Term Contracts as a Monitoring Device," NBER Working Papers 4514, National Bureau of Economic Research, Inc.
  15. Claudio Raddatz & Sergio Schmukler, 2013. "Deconstructing Herding: Evidence from Pension Fund Investment Behavior," Journal of Financial Services Research, Springer, Springer, vol. 43(1), pages 99-126, February.
  16. Hau, Harald & Rey, Hélène, 2008. "Home Bias at the Fund Level," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6721, C.E.P.R. Discussion Papers.
  17. Broner, Fernando A. & Lorenzoni, Guido & Schmukler, Sergio L., 2004. "Why do emerging economies borrow short term?," Policy Research Working Paper Series 3389, The World Bank.
  18. Woochan Kim & Shang-Jin Wei, 1999. "Offshore Investment Funds: Monsters in Emerging Markets?," NBER Working Papers 7133, National Bureau of Economic Research, Inc.
  19. Eduardo R. Borensztein & R. Gaston Gelos, 2001. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," CESifo Working Paper Series 564, CESifo Group Munich.
  20. Bebchuk, Lucian Arye & Stole, Lars A, 1993. " Do Short-Term Objectives Lead to Under- or Overinvestment in Long-Term Projects?," Journal of Finance, American Finance Association, American Finance Association, vol. 48(2), pages 719-29, June.
  21. Allen, Franklin & Carletti, Elena, 2006. "Mark-to-market accounting and liquidity pricing," CFS Working Paper Series, Center for Financial Studies (CFS) 2006/17, Center for Financial Studies (CFS).
  22. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2000. "Managers, investors, and crises : mutual fund strategies in emerging markets," Policy Research Working Paper Series 2399, The World Bank.
  23. Jeremy C. Stein, 2005. "Why are most Funds Open-end? Competition and the Limits of Arbitrage," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(1), pages 247-272, January.
  24. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198296942, October.
  25. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, American Finance Association, vol. 60(6), pages 2987-3020, December.
  26. Mark, Aguiar & Gopinath, Gita, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," Scholarly Articles 3634155, Harvard University Department of Economics.
  27. Eduardo Borensztein & Kevin Cowan & Barry Eichengreen & Ugo Panizza (ed.), 2008. "Bond Markets in Latin America: On the Verge of a Big Bang?," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262026325, December.
  28. Stephane Guibaud & Yves NOsbusch & Dimitri Vayanos, 2011. "Bond Market Clienteles, the Yield Curve and the Optimal Maturity Structure of Government Debt," FMG Discussion Papers, Financial Markets Group dp669, Financial Markets Group.
  29. Patrick Bolton & José Scheinkman & Wei Xiong, 2006. "Executive Compensation and Short-Termist Behaviour in Speculative Markets," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 577-610.
  30. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, Elsevier, vol. 55(1), pages 43-67, January.
  31. Impavido, Gregorio & Musalem, Alberto R. & Tressel, Thierry, 2003. "The impact of contractual savings institutions on securities markets," Policy Research Working Paper Series 2948, The World Bank.
  32. Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 85-110, March.
  33. Goriaev, A.P. & Nijman, T.E. & Werker, B.J.M., 2005. "Yet another look at mutual fund tournaments," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-167598, Tilburg University.
  34. Chotibhak Jotikasthira & Christian Lundblad & Tarun Ramadorai, 2012. "Asset Fire Sales and Purchases and the International Transmission of Funding Shocks," Journal of Finance, American Finance Association, American Finance Association, vol. 67(6), pages 2015-2050, December.
  35. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 23(1), pages 77-100, Winter.
  36. Viviana Fernandez, 2006. "Emerging Derivatives Markets: The Case of Chile," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 42(2), pages 63-92, April.
  37. Mark Aguiar & Gita Gopinath, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 439-452, August.
  38. Narayanan, M P, 1985. " Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, American Finance Association, vol. 40(5), pages 1469-84, December.
  39. Guercio, Diane Del & Tkac, Paula A., 2002. "The Determinants of the Flow of Funds of Managed Portfolios: Mutual Funds vs. Pension Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 37(04), pages 523-557, December.
  40. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 53(5), pages 1589-1622, October.
  41. Raffaele Della Croce & Fiona Stewart & Juan Yermo, 2011. "Promoting Longer-Term Investment by Institutional Investors: Selected Issues and Policies," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2011(1), pages 145-164.
  42. Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 35(1), pages 45-70, April.
  43. Chen, Hsiu-lang & Pennacchi, George G., 2009. "Does Prior Performance Affect a Mutual Fund’s Choice of Risk? Theory and Further Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 44(04), pages 745-775, August.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6922. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.