Popular myths: Gilt switching

Abstract

Current methods of evaluating switches are inadequate to the extent of being misleading. Many make oversimplified assumptions regarding capital gains while all ignore the timing of the coupon payments and the accumulated interest from their reinvestment. If these factors are taken into account so that the switch is correctly evaluated the distinctions made between the various methods are unnecessary. Not surprisingly, the calculations required to evaluate a switch accurately also identify the stocks that will yield maximum returns and are all that are needed to construct optimum portfolios.