Information Risk in TIPS Market: An Analysis of Nominal and Real Interest Rates
AbstractThis 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
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Bibliographic InfoArticle provided by Springer in its journal Review of Quantitative Finance and Accounting.
Volume (Year): 24 (2005)
Issue (Month): 3 (May)
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Web page: http://springerlink.metapress.com/link.asp?id=102990
Treasury inflation-protected securities; real interest rate; information risk; vector error correction model;
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