Are Pension Funds Determinants of Financial Market Stability? A Dynamic Analysis of OECD Countries

This paper studies the relationship between the volatility of financial markets and positions in government bonds, corporate bonds, and stocks held by institutional investment portfolios, particularly pension funds. Panel data corresponding to the 34 countries of the Organization for Economic Co-operation and Development (OECD) in the period 2001-2012 are used. Other methodologies for estimating panel data, including fixed effects, random effects, and the generalized method of moments (GMM), are considered. First, fixed models are estimated, followed by dynamic models. In terms of results, the study finds empirical evidence in favor of the arguments made by Thomas et al. (2014) for the fixed case; however, regarding the dynamic case, the results show that variations in the position of pension fund portfolios have a significant and direct impact on the stability of financial markets