The University of Tennessee, Department of Finance. The authors appreciate helpful comments made by an anonymous reviewer of this journal. The authors would also like to thank Harold Black, Ray Degennaro, Derrick Herndon, Miles Livingston, Brendan Moynihan, Ron Shrieves, Jim Wansley, and participants of the University of Tennessee Department of Finance Seminar Series for helpful comments.
Liquidity, Reconstitution, and the Value of U.S. Treasury Strips
Article first published online: 30 APR 2012
1993 The American Finance Association
The Journal of Finance
Volume 48, Issue 1, pages 315–329, March 1993
How to Cite
DAVES, P. R. and EHRHARDT, M. C. (1993), Liquidity, Reconstitution, and the Value of U.S. Treasury Strips. The Journal of Finance, 48: 315–329. doi: 10.1111/j.1540-6261.1993.tb04712.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero-coupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero-coupon strips created from coupon payments. In addition to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation.