Tax-induced clientele effects in the market for British government securities: Placing bounds on security values in an incomplete market☆
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2012, Journal of Banking and FinanceCitation Excerpt :Hence models of the gilt market invariably had to consider an elaborate model of the yield curve which allowed for the effects of taxation. Schaefer (1982) considered a model in which the gilt market was segmented into tax clienteles favouring high, medium or low coupon gilts. On 6 April 1996 the taxation of gilts was changed in preparation for the introduction of a gilt strip market (which started on 8 December 1997).
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This paper is based on the author's Ph.D. thesis. Thanks — with the usual caveat — for helpful comments on this and previous versions are due to many individuals but particularly to Richard Brealey, Michael Brennan, the late Paul Cootner, George Feiger, Stewart Hodges, Alan Kraus, Robert Litzenberger and Merton Miller. The comments of the referee, John Long, were especially helpful. Ted Day and Wayne Ferson provided excellent research assistance, and Ailsa Land of L.S.E. very kindly allowed me to use her mathematical programming package. Financial support from the Stanford Program in Finance and the London Business School is very gratefully acknowledged.