Anticipated and Repeated Shocks in Liquid Markets

Hongjun Yan

Yale School of Management Working Papers from Yale School of Management

Abstract: We show that Treasury security prices in the secondary market decrease significantly before auctions and recover shortly after. Hence, Treasury security prices tend to be lower on auction days, implying a large issuance cost for the Treasury Department, which is estimated to be 9-18 basis points of the auction size (amounts to over half a billion dollars for issuing Treasury notes in 2007). These results appear to be consistent with the hypothesis of dealers’ limited risk-bearing capacity and the imperfect capital mobility of Treasury investors, highlighting the important role of capital mobility even in the most liquid financial markets

Keywords: Liquidity; Slow-moving capital; Supply shocks; Treasury auction (search for similar items in EconPapers)
Date: 2011-03-01
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Related works:
Working Paper: Anticipated and Repeated Shocks in Liquid Markets (2011)
Working Paper: Anticipated and Repeated Shocks in Liquid Markets (2011)
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