Liquidity, Taxes, and Short-Term Treasury Yields

Kamara, Avraham

doi:10.2307/2331337

Cited by 233 publications

(150 citation statements)

References 25 publications

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“…Finally, a potential explanation for sovereign spreads relates to liquidity issues (Amihud and Mendelson, 1991;Warga, 1992;Kamara, 1994;Krishnamurthy, 2002). Investors may require a liquidity premium for holding "illiquid" assets in order to reward them for bearing higher transaction costs, including taxes.…”

Section: A Model Setupmentioning

confidence: 99%

Government Debt Denomination Policies Before and After the EMU Advent

Hübner

Joliet

2012

Open Econ Rev

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Through a cost-minimizing approach, this paper derives four joint indicators to assess the ef…ciency of the mix of sovereign debt currencies between the countries belonging to the European Monetary Union (EMU). This theoretical insight enables us to explain why and how the introduction of the euro and the adoption of a common monetary policy may have led to signi…cant changes in debt structure among EMU members, notably in favor of further euro-denominated debt. The interplay of intrinsic and strategic variables yields stylized facts that are consistent with country-speci…c empirical evidence. Following the sovereign debt crisis, we further emphasize the value-added of a coordinated debt issuance policy among EMU countries.

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Section: A Model Setupmentioning

confidence: 99%

Government Debt Denomination Policies Before and After the EMU Advent

Hübner

Joliet

2012

Open Econ Rev

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“…This suggests that the price differential between securities of different liquidity is bounded by arbitrage. Kamara (1994) studies the determinants of the yield differentials for matched-maturity note-bill pairs using 91 observations of bid and ask prices for Treasury bills and notes with about 14 weeks to maturity over the period January 1977-July 1984. He posits that the notesbills yield differential reflects differences in liquidity, tax treatment and dealer inventories.…”

Section: Us Treasury Securitiesmentioning

confidence: 99%

“…In addition, Kamara finds a significant tax effect, reflecting the asymmetric tax treatment of notes priced above par value vs. notes priced below par value, and a transient effect of dealers' inventories: An increase in dealers' inventories of notes, which are the less-liquid asset, reduces the notes-bills yield differential. 21 While Amihud and Mendelson (1991a) and Kamara (1994) compare "on-" and "off-the-run" short-term U.S. Treasury securities, other studies examine this issue in the context of long-maturity Treasury bonds. In general, Treasury bonds are actively traded right after they are issued, as a large part of them are initially bought not by their ultimate investors but by dealers and speculators.…”

Section: Us Treasury Securitiesmentioning

confidence: 99%

Liquidity and Asset Prices

2005

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We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on-and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity can thus play a role in resolving a number of asset pricing puzzles such as the small-firm effect, the equity premium puzzle, and the risk-free rate puzzle.

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“…The first approach is to create pairs of zero-coupon bonds with exactly the same maturity date; this fully eliminates interest rate risk. Amihud and Mendelson (1991), Kamara (1994) and Strebulaev (2001) used this method to test for liquidity differences between US Treasury notes and bills; Fleming (2002) compared US Treasury bonds with small and large outstanding amounts. The second approach is to form triplets of coupon bonds, which, with suitable bond weights, also eliminate interest rate risk.…”

Section: Literaturementioning

confidence: 99%

Comparing Possible Proxies of Corporate Bond Liquidity

Houweling¹,

Mentink

Vorst

2003

SSRN Journal

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We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies. JEL codes:C13, G12

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Liquidity, Taxes, and Short-Term Treasury Yields

Cited by 233 publications

References 25 publications

Government Debt Denomination Policies Before and After the EMU Advent

Government Debt Denomination Policies Before and After the EMU Advent

Liquidity and Asset Prices

Comparing Possible Proxies of Corporate Bond Liquidity

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