TITLE:
The Impact of Pension Funds’ Investments on the Capital Market—The Case of Lusaka Securities Exchange
AUTHORS:
Nsama Musawa, Clement Mwaanga
KEYWORDS:
Stock Market Capitalization, Pension Fund Investments, Cointergration
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.7 No.10,
October
11,
2017
ABSTRACT: The
Lusaka Securities exchange (LuSE) is one of the developing stock markets in
Africa. As of 2015 it had only 22 listed companies with the market capitalization
of about 5849 million dollars. There are a number of sectors that contribute to the growth of
the stock market in Zambia. This study focused on the insurance sector, the
pension funds mobilized contributions from the working population and invested
in various assets among them is equity. According to the pension scheme
investment guidelines (2011), pension funds are mandated to invest not less
than 5% but not more than 70% of their total investment in equity. Hence, one
would expect pension funds to have a good effect on the Zambian capital market.
However the impact cannot be conclusive without undertaking a study to assess
the effect of pension funds and capital market. Therefore, this study was an
attempt to investigate the long run effect of pension fund’s investment on the
Lusaka securities exchange performance. The study used quarterly
data for the period ranging from January 2009 to December 2015, and employed the cointegration and
Vector Error Correction; the results
prove the existence of long run relationships between the pension funds and the
market capitalization. This relationship implies that if pension funds are
encouraged to invest more in equity, it will contribute to the growth of
capital market, hence developing. Recommendations have been made to policy markers
on how they can use the sector to improve the performance of the capital market.