Contractual savings, stock, and asset markets
The authors study the relationship between the development of insurance, and contractual savings, (the assets and portfolio composition of pension funds, and life and non-life insurance companies) and the development of stock markets (market capitalization and value traded). Their contribution lies in providing cross-country, and time-series on a hypothesis that is very popular - but had not been substantiated - among supporters of funded pension systems, and insurance in which reserves are largely invested in tradable securities (equities and bonds). The authors presenta three-assets model (money, quasi money, and shares) to study the effects of the development of contractual savings (pension funds and life insurance companies) and non-life insurance companies on assets market equilibrium, and on stock market development. They use an unbalanced panel of 21 OECD, and 5 developing countries, and an error components two-stage least squares (EC2SLS) estimator, including a test for endogeneity of these institutional investors. The results support the hypothesis that contractual savings, and non-life insurance companies can be treated as exogenous to the development of stock markets; that contractual savings and non-life insurance companies, as well as their portfolio policies, promote stock market development as measured by stock market capitalization, and value traded as a share of GDP. The results show that stock market capitalization is positively correlated with the return on stocks, the assets of contractual savings and non-life insurance companies, the shares of stocks in the portfolios of contractual savings and non-life insurance companies, and the value traded stocks. Stock market capitalization is negatively correlated with the real interest rate, the real return on money (measured by the inverse of inflation), and stock market volatility. Stock market value traded is positively correlated with the shares of stocks in the portfolios of contractual savings and non-life insurance companies, and the real return on money. It is negatively correlated with the real interest rate. The authors conclude that insurance and contractual savings are powerful instruments for developing stock markets, providing depth and liquidity. Higher liquidity, in turn, further promotes market capitalization.
|Date of creation:||30 Nov 2000|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- Ross Levine, 1997.
"Financial Development and Economic Growth: Views and Agenda,"
Journal of Economic Literature,
American Economic Association, vol. 35(2), pages 688-726, June.
- Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
- Munnell, Alicia H, 1976. "Private Pensions and Saving: New Evidence," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1013-32, October.
- Vittas, Dimitri & Skully, Michael, 1991. "Overview of contractual savings institutions," Policy Research Working Paper Series 605, The World Bank.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, .
"Legal Determinants of External Finance,"
19443, Harvard University OpenScholar.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
- RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
- Martin Feldstein & Jeffrey B. Liebman, 2001.
NBER Working Papers
8451, National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1996.
"The Missing Piece in Policy Analysis: Social Security Reform,"
American Economic Review,
American Economic Association, vol. 86(2), pages 1-14, May.
- Martin Feldstein, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," NBER Working Papers 5413, National Bureau of Economic Research, Inc.
- Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," World Bank Economic Review, World Bank Group, vol. 10(2), pages 341-69, May.
- Impavido, G., 1998. "Institutional Investors, StockMarkets and Firms' Information Disclosure," The Warwick Economics Research Paper Series (TWERPS) 503, University of Warwick, Department of Economics.
- Alfredo Cuevas & George A Mackenzie & Philip R. Gerson, 1997. "Pension Regimes and Saving," IMF Occasional Papers 153, International Monetary Fund.
- Feldstein, Martin, 1978.
"Do private pensions increase national savings?,"
Journal of Public Economics,
Elsevier, vol. 10(3), pages 277-293, December.
- Musalem, Alberto R. & Impavido, Gregorio & Tressel, Thierry, 2001. "Contractual savings, capital markets, and firms'financing choices," Policy Research Working Paper Series 2612, The World Bank.
- Breusch, T.S. & Pagan, A.R., .
"The Lagrange multiplier test and its applications to model specification in econometrics,"
CORE Discussion Papers RP
412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
- Jeanine Bailliu & Helmut Reisen, 1997.
"Do Funded Pensions Contribute to Higher Aggregate Savings?: A Cross-Country Analysis,"
OECD Development Centre Working Papers
130, OECD Publishing.
- Jeannine Bailliu & Helmut Reisen, 1998. "Do funded pensions contribute to higher aggregate savings? A cross-country analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(4), pages 692-711, December.
- Catalan, Mario & Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings or stock market development - Which leads?," Policy Research Working Paper Series 2421, The World Bank.
- Levine, Ross & Zervos, Sara, 1996.
"Stock Market Development and Long-Run Growth,"
World Bank Economic Review,
World Bank Group, vol. 10(2), pages 323-39, May.
- Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank.
- Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
- Andrew A. Samwick, 2000. "Is Pension Reform Conducive to Higher Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 264-272, May.
- Hubbard, R Glenn, 1986. "Pension Wealth and Individual Saving: Some New Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 167-78, May.
- Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," World Bank Economic Review, World Bank Group, vol. 10(2), pages 223-39, May.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2490. 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 references are entirely missing, you can add them using this form.