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Pension funds and stock market volatility: An empirical analysis of OECD countries

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  • Thomas, Ashok
  • Spataro, Luca
  • Mathew, Nanditha
Abstract
The paper explores the empirical relationship between the share of pension funds assets invested in stocks and stock market volatility in OECD markets. For this purpose, by using panel data of 34 OECD countries from 2000 to 2010, we estimate both a random-effects panel model and a Prais–Winsten regression with panel-corrected standard errors and autoregressive errors. The estimations document that there is a significant negative relationship between the share of pension funds assets invested in stocks and stock market volatility in OECD markets. The binary probit and logit models further validate the argument that pension funds as institutional investors can dampen stock market volatility.

Suggested Citation

  • Thomas, Ashok & Spataro, Luca & Mathew, Nanditha, 2014. "Pension funds and stock market volatility: An empirical analysis of OECD countries," Journal of Financial Stability, Elsevier, vol. 11(C), pages 92-103.
    • Handle: RePEc:eee:finsta:v:11:y:2014:i:c:p:92-103
    DOI: 10.1016/j.jfs.2014.01.001
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    More about this item

    Keywords

    Pension funds; Stock market volatility; Panel data;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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