Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Test of Portfolio Crowding-Out and Related Issues in Finance

Contents:

Author Info

  • Jeffrey A. Frankel

Abstract

This paper tests hypotheses regarding the parameters in investors'asset demand functions. Most important is the hypothesis that federal bonds are closer substitutes for equity than for money; it is associated with the hypothesis of "portfolio crowding out" by federal borrowing. Previous regression studies of asset demand functions have not been able to obtain precise and plausible estimates for the parameters, without the imposition of prior beliefs. The present paper uses a MLE technique that dominates regression in that it makes full use of the constraint that the parameters are not determined arbitrarily, but rather are determined by mean-variance optimization on the part of the investor. The technique also dominates, on the other hand, previous estimates of the optimal portfolio from ex post return data, in that expected returns are not assumed to be constant over time, or to change slowly, but rather are allowed to fluctuate freely. Thus the framework is consistent with questions such as the effects of a sudden increase in federal debt on the expected returns of the various assets.Some hypotheses are tested where the answer seems clear in advance, such as a negative effect of the supply of money on the expected rate of return on equities. There the results of the MLE technique are much more plausible than the regression results. In the case of greatest controversy, a point estimate shows portfolio crowding in, not portfolio crowding out.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1205.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1205.

as in new window
Length:
Date of creation: Sep 1983
Date of revision:
Publication status: published as Frankel, Jeffrey A. "Portfolio Crowding-Out Empirically Estimated," Quarterly Journal of Economics, Vol. 100, Supplement, (1985), pp. 1041-1065.
Handle: RePEc:nbr:nberwo:1205

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 12(2), pages 259-93, Special I.
  2. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, Econometric Society, vol. 41(5), pages 867-87, September.
  3. Masson, Paul R, 1978. "Structural Models of the Demand for Bonds and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 45(180), pages 363-77, November.
  4. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 244, Cowles Foundation for Research in Economics, Yale University.
  5. Fair, Ray C & Malkiel, Burton G, 1971. "The Determination of Yield Differentials between Debt Instruments of the Same Maturity," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 3(4), pages 733-49, November.
  6. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  7. Jeffrey A. Frankel & William T. Dickens, 1986. "Are Asset Demand Functions Determined by CAPM?," NBER Working Papers 1113, National Bureau of Economic Research, Inc.
  8. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
  9. Friedman, Benjamin Morton, 1977. "Financial Flow Variables and the Short-Run Determination of Long-Term Interest Rates," Scholarly Articles 4554309, Harvard University Department of Economics.
  10. Roley, V Vance, 1979. "A Theory of Federal Debt Management," American Economic Review, American Economic Association, American Economic Association, vol. 69(5), pages 915-26, December.
  11. Blanchard, Olivier J & Plantes, Mary Kay, 1977. "A Note on Gross Substitutability of Financial Assets," Econometrica, Econometric Society, Econometric Society, vol. 45(3), pages 769-71, April.
  12. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, Elsevier, vol. 2(4), pages 319-337.
  13. Zvi Bodie & Alex Kane & Robert L. McDonald, 1983. "Why Are Real Interest Rates So High?," NBER Working Papers 1141, National Bureau of Economic Research, Inc.
  14. Smith, Gary N & Brainard, William C, 1976. "The Value of A Priori Information in Estimating a Financial Model," Journal of Finance, American Finance Association, American Finance Association, vol. 31(5), pages 1299-1322, December.
  15. William D. Nordhaus & Steven N. Durlauf, 1982. "The Structure of Social Risk," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 648, Cowles Foundation for Research in Economics, Yale University.
  16. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, American Economic Association, vol. 65(5), pages 900-922, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pindyck, Robert S., 1986. "Risk aversion and determinants of stock market behavior," Working papers 1801-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1205. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.