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
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: Suggested Citation