The missing piece of the puzzle: Liquidity premiums in inflation-indexed markets

Arbeitspapier

Fleckenstein et al. (2014) document that nominal Treasuries trade at higher prices than inflation-swapped indexed bonds, which exactly replicate the nominal cash flows. We study whether this mispricing arises from liquidity premiums in inflation-indexed bonds (TIPS) and inflation swaps. Using US data, we show that the level of liquidity affects TIPS, whereas swap yields include a liquidity risk premium. We also allow for liquidity effects in nominal bonds. These results are based on a model with a systematic liquidity risk factor and asset-specific liquidity characteristics. We show that these liquidity (risk) premiums explain a substantial part of the TIPS underpricing.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 183

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Model Construction and Estimation ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Crises ; National Debt; Debt Management; Sovereign Debt
• Thema: liquidity premium ; liquidity risk ; TIPS ; inflation swaps ; TIPS-Treasury puzzle

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Driessen, Joost ; Nijman, Theo E. ; Simon, Zorka
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (wo): Frankfurt a. M.
• (wann): 2017

Weitere Informationen

• DOI: doi:10.2139/ssrn.3042506
• Handle: http://hdl.handle.net/10419/169388
• URN: urn:nbn:de:hebis:30:3-438750
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ