Corporate Cross-Holdings of Equity, Leverage and Pensions: Simulation and Empirical Evidence from the UK

Authors: Trivedi, Kamakshya; Young, Garry

Source: The Economic Journal, Volume 116, Number 510, March 2006 , pp. C190-C208(19)

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Abstract:

This article examines the role of defined benefit company pensions in amplifying the effect of common shocks to companies' stock market valuations. It identifies and evaluates the significance of two channels of amplification: cross-holdings of equities in pension scheme assets and leverage induced by pension liabilities. Econometric analysis of weekly stock market data for a sample of FTSE 350 UK companies confirm that these effects are statistically significant and robust to outlying observations.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2006.01083.x

Affiliations: 1: Bank of England

Publication date: 2006-03-01