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Do preferred habitat investors exist? Evidence from the UK government bond market

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  • Giese, Julia
  • Joyce, Michael
  • Meaning, Jack
  • Worlidge, Jack

Abstract

The existence of investors with non-pecuniary preferences for particular assets is central to the rationale and efficacy of unconventional monetary policies. Using a new, granular dataset for the UK government bond (gilt) market, we identify preferred habitat behaviour directly from the amount of variation investors allow in the average duration of their gilt portfolios. We find investors with particular duration habitats exist across the yield curve. These investors can be reasonably proxied by specific sectors - like foreign central banks, insurance companies and pension funds - and their behaviour conforms to a number of predictions from preferred habitat theory.

Suggested Citation

  • Giese, Julia & Joyce, Michael & Meaning, Jack & Worlidge, Jack, 2024. "Do preferred habitat investors exist? Evidence from the UK government bond market," Economics Letters, Elsevier, vol. 234(C).
  • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004883
    DOI: 10.1016/j.econlet.2023.111462
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    References listed on IDEAS

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    1. Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.
    2. André Lucas & Julia Schaumburg & Bernd Schwaab, 2019. "Bank Business Models at Zero Interest Rates," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 542-555, July.
    3. J. M. Culbertson, 1957. "The Term Structure of Interest Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 71(4), pages 485-517.
    4. Robin Greenwood & Annette Vissing-Jorgensen, 2018. "The Impact of Pensions and Insurance on Global Yield Curves," Harvard Business School Working Papers 18-109, Harvard Business School, revised Dec 2018.
    5. Giese, Julia & Joyce, Michael & Meaning, Jack & Worlidge, Jack, 2021. "Preferred habitat investors in the UK government bond market," Bank of England working papers 939, Bank of England.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Preferred habitat; Gilt market; Yield curve; Cluster analysis;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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