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The Turn of the Year in Money Markets: Tests of the Risk-Shifting Window Dressing and Preferred Habitat Hypotheses

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  • Mark D. Griffiths

    (Richard T. Farmer School of Business, Miami University)

  • Drew B. Winters

    (Rawls College of Business, Texas Tech University)

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    Abstract

    Musto (1997) identifies a turn-of-the-year effect in the commercial paper market and offers risk-shifting window dressing as an explanation. We revisit this market with different methods and find strong evidence rejecting the risk-shifting hypothesis. We extend our analysis to other private-issue money market instruments and find similar results. We find further corroborating evidence in the 1-month T-bill market and aggregate demand deposit data. Our results are consistent with a year-end preferred habitat for liquidity associated with year-end cash flow obligations.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 78 (2005)
    Issue (Month): 4 (July)
    Pages: 1337-1364

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    Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:4:p:1337-1364

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Shanshan Yang & Sherrill Shaffer, 2010. "Bank Window Dressing: A Re-Assessment and a Puzzle," CAMA Working Papers 2010-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Kotomin, Vladimir & Smith, Stanley D. & Winters, Drew B., 2008. "Preferred habitat for liquidity in international short-term interest rates," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 240-250, February.
    3. Gary B. Gorton & Andrew Metrick & Lei Xie, 2014. "The Flight from Maturity," NBER Working Papers 20027, National Bureau of Economic Research, Inc.
    4. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 11.
    5. Downing, Chris & Oliner, Stephen, 2007. "The term structure of commercial paper rates," Journal of Financial Economics, Elsevier, vol. 83(1), pages 59-86, January.
    6. Vladimir Kotomin & Stanley Smith & Drew Winters, 2014. "Interest-rate and calendar-time effects in money market fund and bank deposit cash flows," Journal of Economics and Finance, Springer, vol. 38(1), pages 84-95, January.

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