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Italian Government debt liquidity, is it of value?

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Author Info

  • Simona Delle Chiaie

    ()
    (Banque de France)

  • Bernardo Maggi

    ()
    (Sapienza Universita' di Roma)

Abstract

In this paper we analyze the yield difference between two on- and off-the-run similar notes to gauge the liquidity premium. We investigate this issue by relating such a differential to several liquidity indicators that we build and examine -to our knowledge for the first time- throughout the entire life of the Italian Government securities. We provide evidence on the differences between the US and the Italian security markets, calculate accurately the joint and the total probability for liquidity shocks and provide a methodology to cope with the resilience of a liquidity shock and its implications in terms of issuance policies

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File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20143_mdc.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2014/3.

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Length: 31 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:sas:wpaper:20143

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Keywords: Treasury bonds market; liquidity; on/off-the-run cycle; liquidity shock probability; resilience.;

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References

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  1. Amihud, Yakov & Mendelson, Haim, 1991. " Liquidity, Maturity, and the Yields on U.S. Treasury Securities," Journal of Finance, American Finance Association, vol. 46(4), pages 1411-25, September.
  2. Edwin J. Elton & T. Clifton Green, 1998. "Tax and Liquidity Effects in Pricing Government Bonds," Journal of Finance, American Finance Association, vol. 53(5), pages 1533-1562, October.
  3. Pasquariello, Paolo & Vega, Clara, 2009. "The on-the-run liquidity phenomenon," Journal of Financial Economics, Elsevier, vol. 92(1), pages 1-24, April.
  4. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
  5. Bernardo Maggi & Fabrizio Infortuna, 2008. "Assessing Italian Government bonds' term structure with CIR model in the aftermath of EMU," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(3), pages 163-170.
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Cited by:
  1. Eleonora Cavallaro & Bernardo Maggi, 2014. "State of confidence, overborrowing and the macroeconomic stabilization puzzle," DSS Empirical Economics and Econometrics Working Papers Series 2014/2, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.

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