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**Table 3: Endogeneity of asset returns**

|**HO**|**Distribution**|<br>**Statistics**|**p-value**|
|---|---|---|---|
|**flexog.**|Chi2(1)|1.90|0.1682|
|**pexog.**|Chi2(1)|2.67|0.1020|
|**rexog.**|Chi2(1)|0.02|0.8800|
|**jontlyexog.**|<br>Chi2(3)|9.46|0. 0288|

Contractual savings and non-life insurance companies financial assets are treated as exogenous variables in the ModI model. We also explored the possibility that a twoway relationship exists between the development of contractual savings and/or non-life insurance companies and the development of capital markets. On the one hand, as discussed above, institutional investors promote the development of capital markets. On the other hand, capital market development may well be the _condicio sine qua non_ for institutional investors to develop. In other words, without a well functioning market, institutions like pension funds and life insurance companies cannot develop.

We looked into the data collected for any support to this proposition and Table 4 reports the relevant regressions. In the first regression, we instrumented contractual savings only, in the second regression, we instrumented non-life insurance companies only, and in the third regression, we jointly instrumented contractual savings and non life insurance companies.

**Table 4: Market capitalization - EC2SLS**

||**Mo**|**d2**|**Mo**|**d3**|**Mo**|**d4**|
|---|---|---|---|---|---|---|
|**Variables**|<br>**Coeff.**|**P-val.**|**Coeff.**|**P-val.**|**Coeff.**|**P-val.**|
|**8**|-2.2002|0.016|-3.3769|0. 000|-2.5068|0.002|
|_r_|-1.0053|0.505|0.1916|0.862|-0.4423|0.788|
|p|0.1841|0.028|0.2634|0.002|0.1923|0.019|
|Cs|0.3513|0.006|3.0739|0.005|0.3414|0.003|
|**nI**|2.5156|0.036|0.3320|0 .000|2.8635|0.063|
|**vt**|0.8886|0.000|0.8845|0 .000|0.9002|0. 000|
|**duml**|-0.6131|0 .000|-0.6135|0 .000|-0.6202|0 .000|
|**psim**|-0.8455|0.005|-0.7897|0 .021|-0.8121|0.013|
|<br>**constant**|0.5675|0.001|0.4070|0.002|0.5026|0.007|
|**obs**|281||271||271||
|**R2/1**|0.80||0.78||0.80||
|**JS/2**|85.68|0. 000|90.55|0.00|77.88|0.000|
|**HS /3**|1.82|0.969|2.66|0.9145|2.20|0.948|

Notes: In Mod2 the instruments are: a function of the rate of growth of M2 and real GDP as defined in footnote 27, the rate of change of the real effective exchange rate, the rate of growth of real per-capita GDP, a measure of dispersion of the real interest rate, a measure of dispersion of inflation, and the share of older than 65 population over total population. In Mod3 the instruments are: a function of the rate of growth of M2 and real GDP as defined in Footnote 27, the rate of change of the real effective exchange rate, the rate of growth of real per-capita GDP, a measure of dispersion of the real interest rate, a measure of dispersion of inflation, and the sum of import plus export over GDP. In Mod4 the instruments are: a function of the rate of growth of M2 and real GDP as defined in Footnote 27, the rate of change of the real effective exchange rate, the rate of growth of real per-capita GDP, a measure of dispersion of the real interest rate, a measure of dispersion of inflation, the share of older than 65 population over total population, and the share of imports plus exports over GDP. For a description of the variables used in the regressions, see appendix. /1 The R2 statistics reported is the squared correlation between fitted and actual values. /2 The joint significance test is distributed as a Chi2(8) in all three regressions. /3 HS is the Hausmann specification test and it is distributed as a Chi2(7).