Safe Asset Carry Trade

Review of Asset Pricing Studies (forthcoming)

University of St.Gallen, School of Finance Research Paper No. 2019/09

55 Pages Posted: 25 Jul 2019 Last revised: 15 Jul 2022

See all articles by Benedikt Ballensiefen

Benedikt Ballensiefen

University of St. Gallen - School of Finance

Angelo Ranaldo

University of St. Gallen; Swiss Finance Institute

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). Based on the temporal and cross-sectional variation in short-term rates, we form a carry that, together with a market factor, prices these near-money assets in a linear pricing model. The carry depicts heterogeneity in non-pecuniary convenience yields of collateral assets and increases in the safety premium and the liquidity premium reflecting opportunity cost. Our carry helps explain the cross-section of short-term rates as well as 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). Review of Asset Pricing Studies (forthcoming), 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 )

School of Finance
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://fin-sr.unisg.ch

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland
+41796637711 (Phone)

HOME PAGE: http://www.sfi.ch/de/about-us/news/hsg-faculty-members

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