ABSTRACT
This chapter provides application of portfolio selection theory to the investor groups participating in the US Government securities market culminates in the empirical results. Relating the empirical results to models of portfolio selection allows, in most cases, the direct interpretation of certain aspects of these results. The chapter presents the specifications of the actual demands for US Government securities, and their estimation. In addition, the structural model consisting of the estimated equations, and two market-clearing identities, is used to jointly determine the yields on short-intermediate-term and long-term US Government securities. Mutual savings banks and savings and loan associations have positive and negative new investable financial flows with respect to the endogenous portion of the portfolio. The estimation results are directly related to the underlying portfolio selection theory in two specific instances. First, the results are interpreted according to the effects on desired asset holdings. Secondly, certain constraints on the coefficient matrix on the vector of expected holding-period yields are examined.
