Abstract

http://ssrn.com/abstract=669821
 
 

References (55)



 
 

Citations (46)



 


 



A Search-Based Theory of the On-the-Run Phenomenon


Pierre-Olivier Weill


University of California, Los Angeles; National Bureau of Economic Research (NBER)

Dimitri Vayanos


London School of Economics; Center for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

October 30, 2006

AFA 2006 Boston Meetings Paper

Abstract:     
We propose a model in which assets with identical cash flows can trade at different prices. Infinitely-lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed. That asset enjoys greater liquidity, measured by search times, and a higher lending fee ("specialness"). Liquidity and specialness translate into price premia that are consistent with no-arbitrage. We derive closed-form solutions for small frictions, and can generate price differentials in line with observed on-the-run premia.

Number of Pages in PDF File: 71

Keywords: On-the-run bonds, liquidity, specialness, search, arbitrage

JEL Classification: G1, D8

working papers series


Download This Paper

Date posted: March 11, 2005  

Suggested Citation

Weill, Pierre-Olivier and Vayanos, Dimitri, A Search-Based Theory of the On-the-Run Phenomenon (October 30, 2006). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=669821 or http://dx.doi.org/10.2139/ssrn.669821

Contact Information

Pierre-Olivier Weill
University of California, Los Angeles ( email )
Box 951477
Los Angeles, CA 90095-1477
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Dimitri Vayanos (Contact Author)
London School of Economics ( email )
A350
Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 6382 (Phone)
+44 (0)20 7955 7420 (Fax)
Center for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,673
Downloads: 170
Download Rank: 73,775
References:  55
Citations:  46

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.328 seconds