Bond Liquidity Premia

@inproceedings{Fontaine2008BondLP,
  title={Bond Liquidity Premia},
  author={Jean-S{\'e}bastien Fontaine and Ren{\'e} Garcia},
  year={2008}
}
Recent models of limits to arbitrage imply that the tightness of funding conditions faced by financial intermediaries is a component of the pricing kernel. In the US, the repo market is the key funding market for traders and arbitrageurs implying in turn that the on-the-run premium shares a common component with the risk premia observed in other markets. This observation leads to the following identification strategy. We measure the value of liquidity from the crosssection of on-the-run premia… CONTINUE READING
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