Do long-term institutional investors contribute to financial stability? – Evidence from equity investment in Hong Kong and international markets

Tom Pak Wing Fong, Angela Kin Wan Sze and Edmund Ho Cheung Ho

Journal of International Financial Markets, Institutions and Money, 2022, vol. 77, issue C

Abstract: This study assesses whether long-term institutional investors help stabilise or destabilise stock markets, taking into account international spillovers arising from these investors’ portfolio rebalancing activities. Based on granular data of individual insurance companies and pension funds and their exposures to global markets, our results show that these investors notably change their fund flow dynamics among international markets in times of financial stress, during which the fund flows to developed economies overall are increasingly correlated with those to all other economies. Meanwhile, these long-term institutional investors, who stabilise declines in global stock markets during normal market conditions, destabilise stock markets in major developed economies during adverse market conditions. In view of such different impacts on stock markets, investors and regulators, as well as policymakers, should be mindful of any potential outcomes of the investment behaviour of these institutional investors during different market conditions.

Keywords: Long-term investment; Institutional investors; Insurance companies; Pension funds; Portfolio rebalancing; Pro-cyclicality; Financial stability; Panel data (search for similar items in EconPapers)
JEL-codes: C22 C23 G01 G11 G15 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:77:y:2022:i:c:s1042443122000154

DOI: 10.1016/j.intfin.2022.101521

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