The Effect of Pension Fund Investments on Common Stock Prices

Abstract

Based on S.E.C. figures, the proportion of assets of corporate pension funds invested in common stocks has increased continuously. In 1951 common stock holdings totalled $812 million, representing 13% of the total assets of such funds of $6.876 billion. In 1956, common stock holdings had risen to $3,774 million, representing 26% of the total assets of $16,639,000,000. In 1951 about one-fifth of the net receipts of pension funds ($1,350 million) was invested in common stock, but in 1956 this ratio had risen to one-third, and since the net receipts of corporate pension funds totalled $2,400 million, about $800 million went into common stock. On the other hand, the proportion of new funds going into corporate bonds has been steady, averaging about 57%. proportion of other assets, Government bonds, preferred stocks, mortgages and cash decreased correspondingly. Prevailing opinion minimizes the effect of these purchases on the stock market. First of all, it is held that the amount involved is small in relation to the total value of stock traded on the exchange. Secondly, the Chase Bank experience over a 16 months period' indicated that common stock purchases were spread over nearly 200 issues. This indicated that The over-all impact is compounded of many considerations that make trustees sellers as well as buyers, and in total their activity is only one element among many that enters into the demand for and supply of stocks.