Chinese Pension Fund Investment Efficiency - Evidence from CNCSSF Stock Holdings

36 Pages Posted: 13 Feb 2014

See all articles by Gunnar Lang

Gunnar Lang

ZEW

Shen Yu

Fudan University - Department of Finance

Xian Xu

Fudan University - School of Economics

Date Written: January 27, 2014

Abstract

China’s pension system is facing a large gap of more than one trillion RMB. The investment efficiency of the social security fund therefore receives widespread attention in academic circles. We collected data of stocks held by the Chinese National Council for Social Security Fund (CNCSSF) from 2004 to 2012 to research the stocks’ investment efficiency, distinguishing between direct investment by the CNCSSF and entrusted investment by fund companies. The results indicate that both components of the Chinese Social Security Fund investment have efficiency drawbacks. Direct investment by the CNCSSF does not obtain excess returns, while entrusted investment reaches an annual excess return of 4.32 percent because more private information is available to fund companies than to the CNCSSF during asset allocation. Further analyses of this paper find, however, that the Chinese Social Security Fund has a significant market-stabilizing effect, which is almost three times stronger than the market-stabilizing effect of entrusted investment. In general, entrusted investment performs better than direct investment with regard to investment efficiency, while direct investment performs better in terms of market stabilization.

Keywords: Pension fund investment, Performance evaluation, Chinese pension funds

JEL Classification: G11, G14, G23

Suggested Citation

Lang, Gunnar and Yu, Shen and Xu, Xian, Chinese Pension Fund Investment Efficiency - Evidence from CNCSSF Stock Holdings (January 27, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-007, Available at SSRN: https://ssrn.com/abstract=2385998 or http://dx.doi.org/10.2139/ssrn.2385998

Gunnar Lang (Contact Author)

ZEW ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Shen Yu

Fudan University - Department of Finance ( email )

Shanghai, 200433
China

Xian Xu

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

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