Portfolio Behaviour in a Flow of Funds Model for the Household Sector in India

Moore, Tomoe; Green, Christopher J.; Murinde, Victor

Abstract

We estimate a flow of funds model for the household sector in India, within the Almost Ideal Demand System (AIDS) framework, and examine the demand for money and the substitution effects between money and other financial assets. The restricted long-run model, obtained using cointegration techniques, provides stable equilibrium relationship between I(1) variables and broadly satisfies the axioms of rational choice in consumer demand theory. We find that financial sector reform exerts a significant impact on the interest rate structure and household portfolio preferences; specifically, there is strong substitutability among risk-free assets and a possible speculative effect in the stock market, while the exchange rate strongly influences the demand for money. These findings all have important policy implications.

Citation

Moore, T., Green, C. J., & Murinde, V. (2005). Portfolio Behaviour in a Flow of Funds Model for the Household Sector in India. The Journal of Development Studies, 41(4), 675-702. https://doi.org/10.1080/00220380500092846

• Journal Article Type: Article
• Acceptance Date: Dec 1, 2003
• Online Publication Date: Jan 24, 2007
• Publication Date: Jan 1, 2005
• Deposit Date: May 21, 2017
• Print ISSN: 0022-0388
• Electronic ISSN: 1743-9140
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 41
• Issue: 4
• Pages: 675-702
• DOI: https://doi.org/10.1080/00220380500092846