Institutional Investors and Long-Term Investment : Evidence from Chile

Developing countries are trying to develop long-term financial markets and institutional investors are expected to play a key role. This paper uses unique evidence on the universe of institutional investors from the leading case of Chile to study to what extent mutual funds, pension funds, and insurance companies hold and bid for long-term instruments, and which factors affect their choices. The paper uses monthly asset-level portfolios to show that, despite the expectations, mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns. Thus, the expansion of large institutional investors does not necessarily imply longer-term markets.

Bibliographic Details

Main Authors:	Opazo, Luis, Raddatz, Claudio, Schmukler, Sergio L.
Language:	English en_US
Published:	World Bank, Washington, DC 2014-06
Subjects:	AGENCY PROBLEMS, ASSET CLASS, ASSET CLASSES, ASSET HOLDINGS, ASSET MANAGERS, ASSET PRICES, ASSET VALUES, ASSET-LIABILITY MISMATCH, ASYMMETRIC INFORMATION, AUCTION, AUCTION AMOUNT, AUCTIONS, BANK DEPOSITS, BANK POLICY, BANKING SECTOR, BANKING SYSTEM, BID, BIDS, BOND, BOND AUCTIONS, BOND FUNDS, BOND INDEX, BOND INDICES, BOND MARKETS, BORROWER, CAPITAL MARKET, CAPITAL MARKET DEVELOPMENT, CAPITAL MARKETS, CAPITAL REQUIREMENT, CASH FLOWS, CENTRAL BANK, CONTRACTUAL SAVINGS, CONTRACTUAL SAVINGS INSTITUTIONS, CORPORATE BOND, CORPORATE BOND MARKET, CORPORATE BONDS, CORPORATE DEBT, CORPORATE INVESTMENT, DEBT, DEBT HOLDINGS, DEBT ISSUANCES, DEBT MATURITIES, DEBT MATURITY, DEBTORS, DEFAULT RISK, DERIVATIVES, DERIVATIVES MARKETS, DEVELOPING COUNTRIES, DISCLOSURE REQUIREMENTS, DOLLAR BONDS, DOMESTIC INSTITUTIONAL INVESTORS, DOMESTIC MARKET, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET DEBT, EMERGING MARKETS, EQUITIES, EQUITY HOLDING, EQUITY INSTRUMENTS, EXCHANGE RATES, FAIR VALUE, FEDERAL RESERVE, FEDERAL RESERVE BANK, FIDUCIARY RESPONSIBILITY, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL FRAGILITY, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL STABILITY, FINANCIAL STUDIES, FINANCIAL SUPPORT, FINANCIAL SYSTEM, FIXED INCOME, FIXED INCOME INVESTMENT, FIXED INCOME MARKET, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTMENT, FUND MANAGERS, GLOBAL DEVELOPMENT FINANCE, GOVERNMENT BOND, GOVERNMENT BONDS, GOVERNMENT DEBT, GOVERNMENT PAPER, HOLDINGS, HOLDINGS OF BANK, INDEXED BONDS, INFLATION, INFLATION RISK, INFLATION RISKS, INSTITUTIONAL INVESTOR, INSTITUTIONAL INVESTORS, INSURANCE, INSURANCE COMPANIES, INTEREST RATE, INTEREST RATE DERIVATIVES, INTERNATIONAL BANK, INTERNATIONAL DIVERSIFICATION, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL PORTFOLIO, INTERNATIONAL SETTLEMENTS, INVESTING, INVESTMENT BEHAVIOR, INVESTMENT HORIZON, INVESTMENT HORIZONS, INVESTMENT INSTRUMENTS, INVESTMENT OPPORTUNITIES, INVESTMENT PORTFOLIO, INVESTMENTS IN EQUITY, INVESTOR BASE, INVESTOR DEMAND, INVESTOR REDEMPTIONS, ISSUANCE, ISSUANCES, LEVEL OF CONFIDENCE, LIABILITY, LIFE INSURANCE, LIFE INSURANCE COMPANIES, LIFE INSURANCE COMPANY, LIQUID ASSETS, LIQUIDATIONS, LIQUIDITY, LIQUIDITY CRISES, LIQUIDITY RATIO, LOCAL CURRENCY, LONG-TERM ASSETS, LONG-TERM CAPITAL, LONG-TERM DEBT, LONG-TERM DEBT MARKET, LONG-TERM FINANCE, LONG-TERM INSTRUMENTS, LONG-TERM INVESTMENT, LONG-TERM INVESTMENTS, LONG-TERM INVESTORS, LONG-TERM LIABILITIES, LONG-TERM PAPER, MARK TO MARKET, MARK-TO-MARKET, MARK-TO-MARKET ACCOUNTING, MARKET CONDITIONS, MARKET LIQUIDITY, MARKET MECHANISM, MARKET PARTICIPANTS, MARKET PLAYERS, MARKET PRICES, MATURITIES, MATURITY, MATURITY DATE, MATURITY SPECTRUM, MATURITY STRUCTURE, MATURITY STRUCTURES, MONETARY POLICY, MONEY MARKET, MONEY MARKET INSTRUMENT, MORAL HAZARD, MORTGAGES, MUTUAL FUND, MUTUAL FUND INDUSTRY, MUTUAL FUND MANAGERS, MUTUAL FUNDS, OPEN-END FUNDS, OPPORTUNITY COST, OUTSTANDING DEBT, PENSION, PENSION FUND, PENSION FUNDS, PENSION REFORM, PENSION REFORMS, PENSION SYSTEM, PENSION SYSTEMS, PENSIONS, PORTFOLIO, PORTFOLIO CHOICE, PORTFOLIO HOLDINGS, PORTFOLIO INVESTMENTS, PORTFOLIO REGULATIONS, PORTFOLIOS, PRICE RISK, PRINCIPAL-AGENT PROBLEM, PRINCIPAL-AGENT PROBLEMS, PUBLIC FINANCE, PUBLIC SAVINGS, RATE OF RETURN, REGULATORY PRACTICES, RETAIL INVESTORS, RETIREMENT INCOME SECURITY, RETURN, RETURNS, RISK AVERSION, RISK EXPOSURE, RISK FACTORS, RISK PROFILE, RISK PROFILES, SECURITIES, SECURITIES MARKETS, SHORT MATURITIES, SHORT MATURITY, SHORT-TERM ASSET, SHORT-TERM ASSETS, SHORT-TERM BONDS, SHORT-TERM DEBT, SHORT-TERM INSTRUMENTS, SOVEREIGN BONDS, SOVEREIGN DEBT, STOCKS, TOTAL DEBT, TRADING, TRANCHE, TRANCHES, TRANSACTION, TRANSACTION COSTS, TRANSPARENCY, TREASURY, TURNOVER, TYPE OF INVESTOR, YIELD CURVE,
Online Access:	http://documents.worldbank.org/curated/en/2014/06/19680163/institutional-investors-long-term-investment-evidence-chile https://hdl.handle.net/10986/18756
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