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

Kamakshya Trivedi and Garry Young

Economic Journal, 2006, vol. 116, issue 510, C190-C208

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.

Date: 2006
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