Safe Asset Carry Trade

64 Pages Posted: 25 Jul 2019 Last revised: 17 Jun 2021

See all articles by Benedikt Ballensiefen

Benedikt Ballensiefen

University of St. Gallen - School of Finance

Angelo Ranaldo

University of St. Gallen; University of St. Gallen - School of Finance

Date Written: July 18, 2019

Abstract

We provide the first systematic asset pricing analysis of one of the main safe asset categories, the repurchase agreement (repo). A standard factor model with a market and a carry factor prices these near-money assets. While the market factor determines the short-term interest rate level, the carry factor accounts for their cross-sectional dispersion. Consistent with the safe asset literature, the carry factor depicts heterogeneity in convenience yield and increases in safety premium and liquidity premium reflecting asset scarcity and opportunity cost. Our carry factor helps explain the cross-section of long-term bond returns after accounting for standard bond pricing factors.

Keywords: Safe Asset, Repo, Asset Pricing, Convenience Premium, Bond Pricing.

JEL Classification: E40, E41, G00, G01, G10, G11

Suggested Citation

Ballensiefen, Benedikt and Ranaldo, Angelo, Safe Asset Carry Trade (July 18, 2019). University of St.Gallen, School of Finance Research Paper No. 2019/09, Available at SSRN: https://ssrn.com/abstract=3425892 or http://dx.doi.org/10.2139/ssrn.3425892

Benedikt Ballensiefen

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Angelo Ranaldo (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance s/bf-HSG
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/Lehrstuehle/Lehrstuhl_Ranaldo/Homepage_Ranaldo.aspx

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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