The realized forward term premium in the repo market

Seth Kopchak

Journal of Financial Markets, 2013, vol. 16, issue 2, 253-278

Abstract: Repurchase agreements for general-collateral government debt measure the short-term cost of riskless borrowing, thus avoiding issues relating to specialness of Treasury offerings or irregular term-to-maturity in the Treasury bill market. The spread between reverse and repo rates has previously been ignored by researchers who find that the pure expectation hypothesis either holds at this extremely short end of the term structure or that observed deviations from the expectations hypothesis are not economically significant. This paper shows that the time-varying realized forward premium at the short-end of the yield curve is consistently positive when accounting for the spread between repurchase and reverse repurchase agreement rates.

Keywords: Expectations hypothesis; State space; Repurchase agreement market (search for similar items in EconPapers)
JEL-codes: C32 E43 G21 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:16:y:2013:i:2:p:253-278

DOI: 10.1016/j.finmar.2012.08.001

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