Information Risk in TIPS Market: An Analysis of Nominal and Real Interest Rates

Quentin Chu (), Deborah Pittman and Linda Yu

Review of Quantitative Finance and Accounting, 2005, vol. 24, issue 3, 235-250

Abstract: This study investigates the presence of information risk in two closely linked interest rate securities traded in separate markets: the nominal interest rate observed in the Treasury bond market and the real interest rate observed in the relatively new Treasury Inflation-Protected Securities (TIPS) market. We find that information flows unilaterally from the Treasury bond market to the TIPS market with a one-day lag. The information risk arising from asymmetric information flows may cause less informed traders to demand a higher rate of return (O’Hara, 2003). Our study provides an empirical explanation of why the TIPS yield has been relatively high throughout its nascent trading history. Copyright Springer Science + Business Media, Inc. 2005

Keywords: Treasury inflation-protected securities; real interest rate; information risk; vector error correction model (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:24:y:2005:i:3:p:235-250

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DOI: 10.1007/s11156-005-6865-5

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