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An analysis of the sensitivity of Australian superannuation funds to market movements: a Markov regime switching approach

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  • Eduardo Roca
  • Victor Wong

Abstract

This article investigates the sensitivity of Australian superannuation funds in relation to equity and bond markets. In particular, it examines the extent, speed and duration of response of the Australian superannuation funds's returns to movements in the US and Australian equity and bond markets when fund returns are in the up, normal and down regimes, through the application of Markov regime switching analysis. The results reveal that Australian superannuation funds's returns are most affected by movements in the US equity market, followed by the Australian equity market then by the US bond market. Funds's returns are not influenced at all by movements in the Australian bond market. They respond quickly and briefly to market movements irrespective of whether funds returns are in a down, normal or up state. Funds's returns move positively with the US equity market under all states or regimes of funds returns but most especially during the down regime. They are influenced by the Australian equity market only during the normal regime and by the US bond market only during the up regime. In line with those of previous studies, these results imply that Australian superannuation funds are not able to time their exposure to markets and that their performance is indicative of an efficient market.

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  • Eduardo Roca & Victor Wong, 2008. "An analysis of the sensitivity of Australian superannuation funds to market movements: a Markov regime switching approach," Applied Financial Economics, Taylor & Francis Journals, vol. 18(7), pages 583-597.
  • Handle: RePEc:taf:apfiec:v:18:y:2008:i:7:p:583-597
    DOI: 10.1080/09603100601118292
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    Cited by:

    1. Zhuo Qiao & Keith Lam, 2011. "Granger causal relations among Greater China stock markets: a nonlinear perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1437-1450.
    2. Eduardo Roca & Victor Wong & Gurudeo Tularam, 2010. "The Market Sensitivity of Australian Superannuation Socially Responsible Investment Funds. Evidence from a Markov Regime Switching Approach," Discussion Papers in Finance finance:201012, Griffith University, Department of Accounting, Finance and Economics.

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