Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/169388 
Year of Publication: 
2017
Series/Report no.: 
SAFE Working Paper No. 183
Publisher: 
Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe, Frankfurt a. M.
Abstract: 
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.
Subjects: 
liquidity premium
liquidity risk
TIPS
inflation swaps
TIPS-Treasury puzzle
JEL: 
C51
G12
G01
H63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
938.62 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.