Models of bank portfolio behaviour with reference to commercial banks in the United Kingdom

Fan, Qimiao (1991). Models of bank portfolio behaviour with reference to commercial banks in the United Kingdom. University of Birmingham. Ph.D.

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The existing literature on the portfolio behaviour of commercial banks in general, and of UK commercial banks in particular, has been dominated by one particular set of models — the portfolio-theoretical models based on expected utility maximisation under the assumption of risk aversion. Most of these models are static models. In general, this set of models perform well in terms of the traditional "goodness of fit" measures and many authors have drawn important policy conclusions from them. However, the validity of these models have never been tested against other alternatives. This study attempts to remedy this situation by extending and building a number of alternative models. We consider three sets of models: models couched within the expected utility maximisation framework; models based on the Safety First principle and models based on the precautionary approach. Both static and dynamic versions of these models are examined. The data used are monthly balance sheet data of the London clearing banks for the period 1959-1983. This data period is much longer than that covered by the previous studies and encompasses a number of different control regimes. We make specific allowance for this. Our primary objective is not to arrive at one particular model of bank portfolio behaviour which "fits" the data well, but to test the different sets of models and to examine whether any of them can be accepted by the data. . The various sets of models considered in this study are non-nested within each other. Thus, another major innovation of the thesis is to employ one recently developed non-nested test statistic to test the models. Non-nested testing in applied econometric work is still at an early stage and, to my knowledge, has not been used in testing bank portfolio models. Our main findings are that none of the static models considered can be accepted by the data but that two of the dynamic models based on the portfolio-theoretical approach cannot be rejected.

Type of Work: Thesis (Doctorates > Ph.D.)
Award Type: Doctorates > Ph.D.
Licence: All rights reserved
College/Faculty: Faculties (to 1997) > Faculty of Commerce and Social Sciences
School or Department: Department of Economics
Funders: Other
Other Funders: State Education Commission of China, British Council, Committee of Vice-Chancellors and Principals of the UK Universities, University of Birmingham, UK Universities China Fund
Subjects: H Social Sciences > HG Finance


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