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Article: A Co-integration Study of the Efficiency of the US Treasury STRIPs Market

TitleA Co-integration Study of the Efficiency of the US Treasury STRIPs Market
Authors
Issue Date2005
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/routledge/00036846.html
Citation
Applied Economics, 2005, v. 37 No 6, p. 695-703 How to Cite?
AbstractOne theoretical implication of cointegration, according to Granger (1986), is that asset prices in an efficient market cannot be cointegrated. Using price data on US Treasury STRIPS with maturities from 2/15/1997 to 8/15/2015, it is found that a set of three STRIPS series is often cointegrated. In addition, by setting up a costless hedge portfolio from three STRIPS with three different maturities, it is found that the hedge portfolio is often stationary and thus arbitrage opportunities are likely to occur. That is, because the hedge portfolio is costless and stationary, cash in can be done when the value of the hedge portfolio is either positive or negative. However, when taking liquidity, tax effects, and transaction costs into consideration, these arbitrage profits would be unlikely. Hence, it is concluded that the US Treasury STRIPS market is efficient.
Persistent Identifierhttp://hdl.handle.net/10722/85542
ISSN
2015 Impact Factor: 0.586
2015 SCImago Journal Rankings: 0.441
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorKung, Jen_HK
dc.contributor.authorCarverhill, APen_HK
dc.date.accessioned2010-09-06T09:06:22Z-
dc.date.available2010-09-06T09:06:22Z-
dc.date.issued2005en_HK
dc.identifier.citationApplied Economics, 2005, v. 37 No 6, p. 695-703en_HK
dc.identifier.issn0003-6846en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85542-
dc.description.abstractOne theoretical implication of cointegration, according to Granger (1986), is that asset prices in an efficient market cannot be cointegrated. Using price data on US Treasury STRIPS with maturities from 2/15/1997 to 8/15/2015, it is found that a set of three STRIPS series is often cointegrated. In addition, by setting up a costless hedge portfolio from three STRIPS with three different maturities, it is found that the hedge portfolio is often stationary and thus arbitrage opportunities are likely to occur. That is, because the hedge portfolio is costless and stationary, cash in can be done when the value of the hedge portfolio is either positive or negative. However, when taking liquidity, tax effects, and transaction costs into consideration, these arbitrage profits would be unlikely. Hence, it is concluded that the US Treasury STRIPS market is efficient.-
dc.languageengen_HK
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/routledge/00036846.htmlen_HK
dc.relation.ispartofApplied Economicsen_HK
dc.titleA Co-integration Study of the Efficiency of the US Treasury STRIPs Marketen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0003-6846&volume=37 No 6&spage=695&epage=703&date=2005&atitle=A+Co-integration+Study+of+the+Efficiency+of+the+US+Treasury+STRIPs+Marketen_HK
dc.identifier.emailCarverhill, AP: carverhill@business.hku.hken_HK
dc.identifier.authorityCarverhill, AP=rp01042en_HK
dc.identifier.doi10.1080/0003684042000329054-
dc.identifier.scopuseid_2-s2.0-17744370092-
dc.identifier.hkuros103636en_HK
dc.identifier.isiWOS:000228642500007-

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