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The Effect of Substitute Assets on Yields in Financial Markets


  • Ken B. Cyree
  • James T. Lindley
  • Drew B. Winters


We examine the link between volume and liquidity in money markets where there are close substitutes. We find that the size of the market, as a proxy for trading volume, affects yield spreads over T-bill rates. We examine the bankers acceptances market, when market size declined by half over the decade of the 1990s. Controlling for interest-rate levels, day-of-the-week, calendar, term structure, credit spread, time-series, and cross-equation effects, we find that the substitution effect does not eliminate the impact of market-size changes on rates, but it does preserve the hierarchy of rates across instruments. Copyright (c) 2007 Financial Management Association International.

Suggested Citation

  • Ken B. Cyree & James T. Lindley & Drew B. Winters, 2007. "The Effect of Substitute Assets on Yields in Financial Markets," Financial Management, Financial Management Association International, vol. 36(1), pages 27-47, March.
  • Handle: RePEc:bla:finmgt:v:36:y:2007:i:1:p:27-47

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    References listed on IDEAS

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    Cited by:

    1. Vladimir Kotomin, 2013. "The Year-End Effect In Money Market Yields: Beyond One Month And Beyond The Crisis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(2), pages 233-252, June.

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