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The intraday price of money: evidence from the e-MID market

Listed author(s):
  • Angelo Baglioni

    (Università Cattolica del Sacro Cuore)

  • Andrea Monticini

    (University of Exeter)

Registered author(s):

    We present a simple model, where intraday and overnight interest rates are linked by a no-arbitrage argument. The hourly interest rate is shown to be a function of the intraday term structure of the overnight rate. This property holds under both assumptions, where an explicit intraday market for interbank loans exists and when it does not. In the first case, such a property is an equilibrium condition; in the second one it holds by definition, as a synthetic hourly loan is a portfolio of overnight contracts. We then provide empirical evidence, based on tick- by-tick data for the e-MID money market (covering the whole 2003). The overnight rate shows a clear downward pattern throughout the operating day. A positive hourly interest rate emerges from the intraday term structure of the overnight rate: we estimate the market price of a one hour interbank loan to be slightly above a half basis point.

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    Paper provided by EconWPA in its series Finance with number 0507020.

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    Length: 14 pages
    Date of creation: 21 Jul 2005
    Handle: RePEc:wpa:wuwpfi:0507020
    Note: Type of Document - pdf; pages: 14
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    1. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    2. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    3. James J. McAndrews & Samira Rajan, 2000. "The timing and funding of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 17-32.
    4. Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
    5. Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44.
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