The relevance of index funds for pension investment in equities
Ajay Shah () and
No 2494, Policy Research Working Paper Series from The World Bank
The rise of index funds over the past 25 years has been a remarkable phenomenon. The traditional rationale for the success of index funds is market efficiency, net of transaction costs. The authors also focus on the role of agency conflicts between fund managers and investors, which are hard to resolve, given the low power of statistical tests of performance. Most of the empirical evidence about the superiority of index funds comes from the United States. The authors discuss issues associated with the application of index funds in developing countries, as well as policy issues in the financial sector that affect the enabling market infrastructure for index funds. They also apply these ideas to thinking about the relevance of index funds for pension investment. The equity premium provides powerful motivation for equity investment by pension funds. Index funds make it possible to sidestep the complexities of forming contracts and monitoring institutions to govern fund managers. In developing countries that seek to use index funds in pension investment, there are avenues through which policymakers can make index funds more viable. In many countries there are significant avenues for improving construction of the market index as well as market mechanisms used in the equity market.
Keywords: Agricultural Knowledge&Information Systems; Payment Systems&Infrastructure; Economic Theory&Research; Markets and Market Access; Access to Markets (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:2494
Access Statistics for this paper
More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().