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

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  • Kamakshya Trivedi
  • Garry Young

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. Copyright 2006 Bank of England.

Suggested Citation

  • Kamakshya Trivedi & Garry Young, 2006. "Corporate Cross-Holdings of Equity, Leverage and Pensions: Simulation and Empirical Evidence from the UK," Economic Journal, Royal Economic Society, vol. 116(510), pages 190-208, March.
  • Handle: RePEc:ecj:econjl:v:116:y:2006:i:510:p:c190-c208
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    Cited by:

    1. Carlos León & Javier Miguélez, 2021. "Securities cross-holding in the Colombian financial system: a topological approach," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 38(4), pages 786-806, February.

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