Anticipated and Repeated Shocks in Liquid Markets *

  title={Anticipated and Repeated Shocks in Liquid Markets *},
  author={Dong Lou},
This paper examines how anticipated and frequently repeated shocks are absorbed in liquid financial markets. We show that Treasury security prices in the secondary market decrease significantly in the few days leading up to subsequent Treasury auctions and recover shortly after, despite the fact that both the exact time and amount of each auction are announced in advance. This price pattern implies a substantial issuance cost to the Treasury Department, estimated to be between 9 and 18 basis… CONTINUE READING
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