The intraday price of money: evidence from the e-MID market

Angelo Baglioni and Andrea Monticini
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Angelo Baglioni: Università Cattolica del Sacro Cuore

Finance from EconWPA

Abstract: We present a simple model, where intraday and overnight interest rates are linked by a no-arbitrage argument. The hourly interest rate is shown to be a function of the intraday term structure of the overnight rate. This property holds under both assumptions, where an explicit intraday market for interbank loans exists and when it does not. In the first case, such a property is an equilibrium condition; in the second one it holds by definition, as a synthetic hourly loan is a portfolio of overnight contracts. We then provide empirical evidence, based on tick- by-tick data for the e-MID money market (covering the whole 2003). The overnight rate shows a clear downward pattern throughout the operating day. A positive hourly interest rate emerges from the intraday term structure of the overnight rate: we estimate the market price of a one hour interbank loan to be slightly above a half basis point.

Keywords: intraday interest rate; overnight interbank loans; money market. (search for similar items in EconPapers)
JEL-codes: G21 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2005-07-21
Note: Type of Document - pdf; pages: 14
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0507020

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