The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market |
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Authors: | David Goldreich Bernd Hanke and Purnendu Nath |
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Institution: | (1) London Business School and CEPR, London;(2) London Business School, London |
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Abstract: | This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and future liquidity.We compare a variety of (microstructure-based) direct measures of liquidity to compare their effects on prices.We show that the liquidity premium depends primarily on the amount of remaining future liquidity. |
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