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Modelling the UK gilt‐edged market
Author(s) -
Davidson J.,
Madonia G.,
Westaway P.
Publication year - 1994
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950090302
Subject(s) - economics , cointegration , portfolio , asset (computer security) , stock (firearms) , stock market , econometrics , financial economics , monetary economics , capital asset pricing model , mechanical engineering , paleontology , computer security , horse , computer science , engineering , biology
In this paper we examine the sectoral demand for UK gilt‐edged securities. The Tobin–Markowitz model of portfolio choice generates the prediction that asset holdings should be negatively correlated with the own price, and positively correlated with the prices of major substitutes. In contrast, for all the five major groups of UK gilt holders, we find evidence consistent with a reverse correlation between the own price and market holdings which we argue arises due to the passive revaluation of existing holdings. We examine the empirical evidence using both cointegration analysis of stock holdings and a dynamic model of net transactions.