Evaluating the Financial Performance of Latvian and Estonian Second-Pillar Pension Funds

Raimonds Lieksnis


This study investigates whether Latvian and Estonian second-pillar pension fund managers can outperform European equity and fixed income market indexes on a consistent basis. The quarterly returns of 17 pension funds, for the time period from 2003 till 2009, have been studied. Findings confirm the conclusion of similar studies worldwide that it is very difficult to achieve outperformance. None of the pension funds investigated in this study managed to achieve a statistically significant positive Alpha using Jensen’s model with both stock market and composite index benchmarks as independent variables. A modified Treynor-Mazuy model is used to separately evaluate the stock selection and market timing abilities of fund managers. The study helps to resolve a controversy about the market timing skills of secondpillar pension fund managers in Central and Eastern Europe, by confirming earlier US results that indicated a lack in this ability. Fund managers compensate for this deficiency by exhibiting positive, but not statistically significant, stock selection skills.

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