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The stabilizing effects of pension funds vs. mutual funds on country-specific market risk

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  • Xue, Wenjun
  • He, Zhongzhi
  • Hu, Yu

Abstract

Using country-level data on 47 global markets, this paper examines the stabilizing effects of pension funds vs. mutual funds on country-specific market risk. We find that mutual funds have a significantly negative effect on idiosyncratic volatility in developed markets, but this role becomes insignificant in emerging markets. In contrast, pension funds significantly reduce country-specific market risk in both developed and emerging markets, with a much stronger stabilizing effect. The prudence of pension funds subsumes the macrofactor effects on market risk and drives away the effects of mutual funds in emerging markets. Our results suggest that the steady growth of pension funds can be a viable strategy to improve a country’s financial health, especially for emerging markets.

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  • Xue, Wenjun & He, Zhongzhi & Hu, Yu, 2021. "The stabilizing effects of pension funds vs. mutual funds on country-specific market risk," Journal of Multinational Financial Management, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:mulfin:v:60:y:2021:i:c:s1042444x21000153
    DOI: 10.1016/j.mulfin.2021.100691
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