Special Repo Rates: An Empirical Analysis

Authors

  • BRADFORD D. JORDAN,

  • SUSAN D. JORDAN

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    • University of Kentucky, Lexington, Kentucky. We thank Barney Hauptfuhrer and Peter Horowitz of Three Crown Capital Partners and Ken Schacter of Richards and O'Neil for sparking our interest in this subject and for providing some of the data used in this study. We have benefited from comments by and discussions with Darrell Duffie, Randy Jorgensen, David Kuipers, John McConnell, and Paul Swanson.


ABSTRACT

Duffie (1996) examines the theoretical impact of repo “specials” on the prices of Treasury securities and concludes that, all else the same, an issue on special will carry a higher price than an otherwise identical issue. We examine this hypothesis and find strong evidence in support of it. We also examine whether the liquidity premium associated with “on-the-run” issues is due to repo specialness and find evidence of a distinct effect. Finally, we investigate whether auction tightness and percentage awarded to dealers are related to subsequent specialness and find that both variables àre generally significant.

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