What effect
has quantitative easing had on pension deficits of large UK companies? A recent study has suggested that the
final-salary pension shortfall of the top 350 companies in the UK has
quadrupled over the past year from £20 billion to £80 billion. The authors of the report suggest that this
increase is largely due to falling gilt yields, arising from the fact that the
Bank of England has bought a third of the gilt market through quantitative
easing. But this report ignores the
impact of quantitative easing on equities and other real assets held by pension
funds. As highlighted in an earlier
post, quantitative easing may have helped sustain returns on real assets.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...