Abstract

http://ssrn.com/abstract=411280
 
 

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Failed Delivery and Daily Treasury Bill Returns


Ramon P. DeGennaro


University of Tennessee, Knoxville - Department of Finance

James T. Moser


American University - Kogod School of Business


Journal of Financial Services Research, Vol. 4, 1990

Abstract:     
If the seller of a Treasury bill does not provide timely and correct delivery instructions to the clearing bank, the bank does not deliver the security. Furthermore, the seller is not paid until this "failed delivery" is rectified. Since the purchase price is not changed, these "fails" generate interest-free loans from the seller to the buyer. This article studies the effect of failed delivery on Treasury bill prices. We find that investors bid prices to a premium to reflect the possibility of obtaining the interest-free loans that fails represent. This premium is a function of the opportunity cost of the fail. We also find that the bid-ask spread varies directly with the length of the fail. We rule out that our results are due to liquidity premiums, or to a general weekly pattern in short-term interest rates or the bid-ask spread.

Keywords: fails, failed delivery, bid-ask spread

JEL Classification: G12, G20, G21, G24

Accepted Paper Series


Not Available For Download

Date posted: August 12, 2003  

Suggested Citation

DeGennaro, Ramon P. and Moser, James T., Failed Delivery and Daily Treasury Bill Returns. Journal of Financial Services Research, Vol. 4, 1990. Available at SSRN: http://ssrn.com/abstract=411280

Contact Information

Ramon P. DeGennaro (Contact Author)
University of Tennessee, Knoxville - Department of Finance ( email )
423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)
James T. Moser
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
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