Social Security Funds Invest In Capital Market: Theoretical Exploration, Financial Innovation, And Investment Operation

The enhancement of the social security system is becoming increasingly important in establishing, improving, and developing China's socialist market economy system. China's newly established social security funds have already become important parts of economic life; they not only closely relate to everybody's aging, illnesses, and daily life, but also closely related to the young capital market. Why the social security funds must be invested in the capital market, how they enter the capital market, what kind of portfolio should the funds chose, and how to operate - all these theoretical and practical problems must be resolved. This paper will focus on the above issues, and explore practical solutions by which to guide social security funds investment in the capital market. This paper is divided into five chapters; the summary of each chapter follows:Chapter 1 characterizes the social security system, the social insurance system, and the social security funds, stressing the necessity of social security funds in economic development, and the necessity of Capital Market as resources for social security funds' investment. Based on the life-cycle model-one of the theoretical foundations of social insurance economics, this chapter focuses on studying the redistribution effect between pay-as-you-go system and capital-funded individual account system, researching the transition effect of the two systems, and analyzing the cost of institutional change. From the analyses, I conclude that capital-funded individual accounts -at least partly- is necessary and imperative to the social security system.Chapter 2 answers the question why social security funds must invest in the capital market. Social security funds have already become stable and long-term institutional investors in the capital market, and have played an important role in company governance. Moreover, the capital market provides the social security funds a suitable place where their value could be maintained and increased. Only when social security funds are invested in the capital market will they share in the achievements of economic development. In an attempt to propose viable investment for the social security funds, this chapter presents a proposal on how to assign the state-owned share to the social security funds.Chapter 3 examines the principles behind social security fund investment in the capital market, and mainly answers the question of the kinds of financial innovation tools the social security funds could use in the capital market. When they invest, the social security funds must obey the principal of safety first, income orientated, and floating well. In the process of investing, the social security funds can use different financial tools to diversify the portfolio, control the scale of high-risk tools and the risk grade, and envision long-term strategies. The emerging financial innovations provide the social security funds new financial tools, such as the financial productsrelated to the reform and reconstruction of the state-owned enterprises, real estate mortgage loan securities, trust products, and the securities index futures. Social security funds should choose the proper financial innovation tools to realize high-income with low-risk.Based on the theory of portfolio selection, using the capital asset pricing model, Chapter 4 focuses on the portfolio the social security funds could devise after they entered the capital market. After quantitatively analyzing the income-risk in China's stock market (the Shanghai stock exchange composite index is an example), the national debt and the bank deposits, then use them as means to construct different portfolios; I compute the income-risk data of these portfolios. Through the resulting analysis, the conclusion is: although the risk in China's stock market is considerably high, portfolios with lower ratio investment of stock can obtain the advantage of diversification. If the social security funds gradually invest 3-30% of their assets into the stock market, the portfolios' return will...