Yield Structures on the German Investment Markets: Estimate and Prognosis with the Help of a Portfolio Model

Kredit und Kapital, Vol. 27, No. 4, 1994

Posted: 20 Oct 2008

Date Written: 1994

Abstract

The model presented in the paper makes use of the portfolio theory as well as its econometric transposition for estimating the yield structure of different financial-asset investments. As the supply of financial assets is not assumed to be perfectly elastic the demand for alternative assets (portfolio shares) and the corresponding yields are estimated simultaneously. With due consideration being given to the balance-sheet restriction and to the need for two simplifying assumptions, the result is a non-linear model drawn up with the help of a three-step least square estimator using simulated instruments. This procedure has turned out to be advantageous compared with customary ones. Of special interest is the finding that there is a significant backfeed effect of changes in the portfolio structure on the yields (liquidity effect). Moreover, the results of the model calculations confirm the existence of a relatively weak influence of monetary policy on long-term rates of interest. The forecasting properties of the model are satisfactory in general. Nonetheless the model responds to extraordinary events at a relatively low speed because of its autoregressive structure.

Keywords: Portfolio theory, financial assets

JEL Classification: C51,G10

Suggested Citation

Larch, Martin, Yield Structures on the German Investment Markets: Estimate and Prognosis with the Help of a Portfolio Model (1994). Kredit und Kapital, Vol. 27, No. 4, 1994, Available at SSRN: https://ssrn.com/abstract=1286102

Martin Larch (Contact Author)

European Fiscal Board ( email )

Belgium
0032 2 2969244 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
274
PlumX Metrics