Abstract
The aim of this paper is to investigate the dynamic interaction between stock market development and pension funds’ investment in equities. Results are derived from a panel VAR of 29 countries. Our main finding is that pension fund investments in equities enhance stock market development. Moreover, there is significant bidirectional Granger causality between stock market development and pension funds’ investment in equities. The forecast error variance decompositions validate the importance of pension funds for stock market development. Our analysis has important implications for the design of future government policies regarding pension fund systems and for the well-functioning of capital markets.
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