Download This PaperSafe Asset Carry Trade
Review of Asset Pricing Studies, Volume 13, Issue 2, June 2023, Pages 223–265 (Editor's Choice)
University of St.Gallen, School of Finance Research Paper No. 2019/09
55 Pages Posted: 25 Jul 2019 Last revised: 3 Oct 2023
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: Suggested Citation
Benedikt Ballensiefen
University of St. Gallen - School of Finance ( email )
Unterer Graben 21
St.Gallen, CH-9000
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland
+41796637711 (Phone)
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