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The Effect of Transaction Size on Off-the-Run Treasury Prices

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Author Info
David F. Babbel
Craig B. Merrill
Mark F. Meyer
Meiring de Villiers

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Abstract

A price pressure effect is implied by segmentation in the market for a security. An empirical property of a segmented market is that the price of the security is sensitive to supply and demand conditions for that specific security, absent changes in risk and absent any new information. This paper examines intra-day trading data from the inter-dealer broker market for U.S. Treasury securities and finds that there is a price pressure effect in the off-the-run Treasury market. Thus, securities that would appear to be very close substitutes, i.e., on-the-run and off-the-run Treasury bonds, behave as if there is some degree of market segmentation. There have been several studies of price pressure in the equity market and Treasury bill market but this is the first study of the off-the-run Treasury note and bond market to investigate a price pressure effect using intra-day data. It is also the first study to analyze price pressure through matched pairs of securities that differ only in liquidity and with high frequency data.

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Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 01-03.

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Date of creation: Feb 2001
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Handle: RePEc:wop:pennin:01-03

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Working Papers 04-16, Bank of Canada. [Downloadable!]
  2. Han, Bing & Longstaff, Francis A. & Merrill, Craig, 2005. "The Cherry-Picking Option in the U.S. Treasury Buyback Auctions," Working Paper Series 2004-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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