The purpose of this study is to empirically test the hypothesis that the aggregate activity of pension funds in the Canadian equity market has created a segmentation of that market. It is possible that this aggregate activity has a measurable impact on the market price of the stocks purchased. If it can be shown that pension funds do command a relatively strong position in the market for Canadian equities then a study of this nature would be justified. The importance of pension funds in recent years will be discussed and any trends of significance to the development of the Canadian equity market identified. The empirical study will cover the period 1964-72 and will determine whether the concentration of pension fund investments in a small number of Canadian common stocks has in fact had a measurable impact on the market prices of these stocks. If pension fund activity was bidding up the market price of these stocks one would expect this to be indicated in a significantly different rate of return for these stocks in comparison with other non-pension stocks. / Business, Sauder School of / Graduate

The dissertation deals with four issues affecting Employer Sponsored Pension Plans: (a) the rationale for their existence and growth, (b) the impact of taxation on funding decisions, (c) the development of an investment model for such funds, and (d) the evaluation of the historical investment performance of 83 Canadian pension funds. The proposed investment model integrates the fund's assets with the firm's assets. It is operationalized for four Canadian firms, using a universe of 192 common stocks and eleven bond portfolios. The results indicate that the optimal pension fund is firm-specific, in terms of both asset mix and security selection. The evaluation of investment performance emphasizes the equity portfolios of the 83 Canadian funds. The results show non-superior performance by these funds; the conclusions are robust across holding periods, benchmarks, performance measures and time periods. The study has major implications for the funding and investment policies of the pension funds and their investment performance.

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The thesis examines Canada's public pension system and its economic impact. It discusses the evolution of Canada's public pension plans and by reviewing reports commissioned by the Quebec, Ontario, and federal governments as well as other studies, it indicates the possible direction that the system may take in the future. A two-period model of consumption planning is employed to illustrate the effects of social security programs on saving. A neoclassical growth model is then considered to see what criteria are used to determine the optimal rate of saving. By referring to the Cambridge economists' views on this subject, possible weaknesses in the neoclassical theory are exposed and the implications for economic growth are established. The empirical part of the thesis attempts to resolve two important questions, namely, the extent to which public pension plans have affected personal saving in Canada and the role of public pension benefits in the retirement decision.

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