Market trading structures and asset pricing: evidence from the Treasury-bill markets

Earlier studies report significant price disparities betweenfutures and forward or spot markets. Examining the Treasury-billmarkets, this article demonstrates that differences in markettrading structures explain these disparities. Treasury-billfutures rates contain significantly lower liquidity and defaultpremia than do synthetic forward rates. This reflects the functioningof a futures' clearing association and differences between anopen-outcry auction futures market and an over-the-counter dealerspot market. The same factors that make futures contracts nonredundantsecurities also explain the existence, in equilibrium, of pricedisparities.