IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v26y2002i6p1165-1179.html
   My bibliography  Save this article

The Canadian treasury bill auction and the term structure of interest rates

Author

Listed:
  • Godbout, Lise
  • Storer, Paul
  • Zimmermann, Christian

Abstract

This paper examines the efficiency of the Canadian treasury bill market as measured by the performance of the expectations model of the term structure of interest rates. In particular, market efficiency is shown to depend upon certain institutional features of the treasury bill auction process. Building on past work by Campbell and Galbraith (1997), the paper establishes links between rejections of efficiency and high absolute values of the spread between six and three month interest rates. The major contribution of the paper is to then show that a link exists between weeks in which spreads are large and weeks in which accepted auction yields show a large degree of dispersion. The paper discusses the implications of these findings for the term structure literature and for the reform of auction precedures currently in progress at the Bank of Canada and Department of Finance. Ce papier examine l'efficacité du marché des bons du trésor canadiens tel que mesurée par la performance du modèle de la structure par terme des taux d'intérêt. En particulier, l'efficacité du marché dépend de certaines caractéristiques institutionnelles du processus d'adjudication des bons du trésor. Se basant sur les travaux de Campbell et Galbraith (1997), le papier etablit des liens entre les rejets d'efficacité et les écarts élevés, en termes absolus, des rendements des titres à trois et six mois. La principale contribution du papier est alors de montrer qu'il y a un lien entre les semaines où ces écarts sont importants et les semaines où les rendements des offres acceptées à l'enchère sont fortement dispersées. Le papier discute les implications de ceci pour la littérature sur la structure par terme des taux d'intérêt et pour la réforme des procédures d'enchère actuellement en cours à la Banque du Canada et au Départment des Finances.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Godbout, Lise & Storer, Paul & Zimmermann, Christian, 2002. "The Canadian treasury bill auction and the term structure of interest rates," Journal of Banking & Finance, Elsevier, vol. 26(6), pages 1165-1179, June.
    • Handle: RePEc:eee:jbfina:v:26:y:2002:i:6:p:1165-1179
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(01)00161-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Walid Hejazi & Huiwen Lai & Xian Yang, 2000. "The expectations hypothesis, term premia, and the Canadian term structure of interest rates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 133-148, February.
    2. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 223-248.
    3. Aman Ullah, 1988. "Non-parametric Estimation of Econometric Functionals," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 625-658, August.
    4. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 211-228.
    5. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    6. Walid Hejazi & Huiwen Lai & Xian Yang, 2000. "The expectations hypothesis, term premia, and the Canadian term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 133-148, February.
    7. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
    8. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    9. Campbell, Bryan & Galbraith, John W, 1993. "Inference in Expectations Models of the Term Structure: A Non-parametric Approach," Empirical Economics, Springer, vol. 18(4), pages 623-638.
    10. Campbell, Bryan & Galbraith, John W, 1997. "Non-parametric Regression Models of Deviations from Orthogonality in the Expectations Theory of the Term Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 265-284, May.
    11. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-243, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bahamin, Payam & Cebula, Richard & Foley, Maggie & Houmes, Robert, 2011. "The Demand for Treasury Securities at Auction," MPRA Paper 52026, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bulkley, George & Harris, Richard D.F. & Nawosah, Vivekanand, 2011. "Revisiting the expectations hypothesis of the term structure of interest rates," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1202-1212, May.
    2. repec:adr:anecst:y:1998:i:52:p:01 is not listed on IDEAS
    3. Byeongseon Seo, 2000. "Nonlinear Mean Reversion In The Term Structure Of Interest Rates," Computing in Economics and Finance 2000 121, Society for Computational Economics.
    4. Wahab, Mahmoud, 1997. "On risk, rationality and the predictive ability of European short-term adjusted yield spreads," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 737-765, September.
    5. Seo, Byeongseon, 2003. "Nonlinear mean reversion in the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 2243-2265.
    6. Magdalena Massot Perelló & Juan M. Nave Pineda, 2003. "La hipótesis de las expectativas en el largo plazo: evidencia en el mercado español de deuda pública," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 533-564, September.
    7. Éric Jondeau & Roland Ricart, 1998. "La théorie des anticipations de la structure par terme : test à partir de titres publics français," Annals of Economics and Statistics, GENES, issue 52, pages 1-22.
    8. Seo, Byeongseon, 2003. "Nonlinear mean reversion in the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2243-2265, September.
    9. Ederington, Louis H. & Huang, Chao-Hsi, 1995. "Parameter uncertainty and the rational expectations model of the term structure," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 207-223, May.
    10. M. Isabel Martínez-Serna & Eliseo Navarro-Arribas, 2002. "El modelo de McCallum. Evidencia empírica en la estructura temporal de los tipos de interés española," Investigaciones Economicas, Fundación SEPI, vol. 26(2), pages 323-357, May.
    11. Warren J. Tease, 1988. "The Expectations Theory of the Term Structure of Interest Rates in Australia," The Economic Record, The Economic Society of Australia, vol. 64(2), pages 120-127, June.
    12. Noor Ghazali & Soo-Wah Low, 2002. "The expectation hypothesis in emerging financial markets: the case of Malaysia," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1147-1156.
    13. Hurn, A Stan & Moody, Terry & Muscatelli, V Anton, 1995. "The Term Structure of Interest Rates in the London Interbank Market," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 419-436, July.
    14. Musti, Silvana & D'Ecclesia, Rita Laura, 2008. "Term structure of interest rates and the expectation hypothesis: The euro area," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1596-1606, March.
    15. Sharon Kozicki & Peter A. Tinsley, "undated". "Moving Endpoints in Macrofinance," Computing in Economics and Finance 1996 _058, Society for Computational Economics.
    16. Jondeau, E. & Sedillot, F., 1998. "La prevision des taux longs français et allemands a partir d'un modele a anticipations rationnelles," Working papers 55, Banque de France.
    17. Manqoba Ntshakala & Laurence Harris, 2018. "The information content of the yield spread about future inflation in South Africa," WIDER Working Paper Series wp-2018-63, World Institute for Development Economic Research (UNU-WIDER).
    18. Mayfield, E. Scott & Murphy, Robert G., 1996. "Explaining the term structure of interest rates: A panel data approach," Journal of Economics and Business, Elsevier, vol. 48(1), pages 11-21, February.
    19. Tzavalis, Elias & Wickens, Michael R, 1997. "Explaining the Failures of the Term Spread Models of the Rational Expectations Hypothesis of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 364-380, August.
    20. Gerlach, Stefan & Smets, Frank, 1997. "The term structure of Euro-rates: some evidence in support of the expectations hypothesis," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 305-321, April.
    21. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 211-228.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:26:y:2002:i:6:p:1165-1179. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.