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Liquidity, Reconstitution, and the Value of U.S. Treasury Strips

1993; Wiley; Volume: 48; Issue: 1 Linguagem: Inglês

10.2307/2328892

1540-6261

Philip R. Daves, Michael C. Ehrhardt,

Financial Markets and Investment Strategies

The Journal of FinanceVolume 48, Issue 1 p. 315-329 Shorter Paper Liquidity, Reconstitution, and the Value of U.S. Treasury Strips PHILLIP R. DAVES, PHILLIP R. DAVESSearch for more papers by this authorMICHAEL C. EHRHARDT, MICHAEL C. EHRHARDT The University of Tennessee, Department of Finance. The authors appreciate helpful comments made by an anonymous reviewer of this journal. The authors would also like to thank Harold Black, Ray Degennaro, Derrick Herndon, Miles Livingston, Brendan Moynihan, Ron Shrieves, Jim Wansley, and participants of the University of Tennessee Department of Finance Seminar Series for helpful comments.Search for more papers by this author PHILLIP R. DAVES, PHILLIP R. DAVESSearch for more papers by this authorMICHAEL C. EHRHARDT, MICHAEL C. EHRHARDT The University of Tennessee, Department of Finance. The authors appreciate helpful comments made by an anonymous reviewer of this journal. The authors would also like to thank Harold Black, Ray Degennaro, Derrick Herndon, Miles Livingston, Brendan Moynihan, Ron Shrieves, Jim Wansley, and participants of the University of Tennessee Department of Finance Seminar Series for helpful comments.Search for more papers by this author First published: March 1993 https://doi.org/10.1111/j.1540-6261.1993.tb04712.xCitations: 46 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL ABSTRACT An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero-coupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero-coupon strips created from coupon payments. In addition to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation. REFERENCES Amihud, Yakov, and Haim Mendelson, 1986, Asset pricing and the bid-ask spread, Journal of Financial Economics 17, 223– 249. Amihud, Yakov, and Haim Mendelson, 1989, The effects of beta, bid-ask spread, residual risk and size on stock returns, Journal of Finance 44, 479– 486. Amihud, Yakov, and Haim Mendelson, 1991, Liquidity, maturity and the yields on U.S. Treasury securities, Journal of Finance 46, 1411– 1426. Fisher, Lawrence, 1959, Determinant of risk premiums on corporate bonds, Journal of Political Economy 67, 217– 237. Ishi, Hiromitsu, 1989, The Japanese Tax System (Oxford University Press, New York). Judge, George G., R. Carter Hill, William Griffiths, and Tsoung Chao Lee, 1982, Introduction to the Theory and Practice of Econometrics (John Wiley & Sons, Somerset, N.J.). Klaffky, Thomas E., and Kopprasch, Robert W., 1990, Analysis of Treasury zero-coupon bonds, in Frank J. Fabozzi, ed.: The Handbook of Treasury Securities (Probus Publishing Co., Chicago), pp. 115– 143. Livingston, Miles, and Deborah W. Gregory, 1989, The Stripping of U.S. Treasury securities, Monograph Series in Finance and Economics, Salomon Brothers Center for the Study of Financial Institutions, New York University. Odden, Lee, 1989, Tax reform 1989, Tokyo Business Today, March 24–27. Shapiro, Monte H., and Carol E. Johnson, 1990, Overview of Government zero market and investment strategies, in Frank J. Fabozzi, ed.: The Handbook of Treasury Securities (Probus Publishing Co., Chicago), pp. 93– 113. Silber, William L., 1991, Discounts on restricted stock: The impact of illiquidity on stock prices, Working paper, New York University. Stigum, Marcia, 1990, The Money Market (Dow Jones-Irwin, Homewood, Ill.). Citing Literature Volume48, Issue1March 1993Pages 315-329 ReferencesRelatedInformation