Safe Asset Carry Trade

Item Type Monograph (Working Paper)
Abstract

We provide an asset pricing analysis of one of the main categories of near-money or safe assets,the repurchase agreement (repo). Heterogeneity in repo rates allows for a remunerative carry
trade. The return on this carry trade, our carry factor, together with a market factor explain the temporal and cross-sectional variation in repo rates within a no-arbitrage framework: While
the market factor determines the level of short-term interest rates, the carry factor accounts for the cross-sectional dispersion. Consistent with the safe asset literature, the carry factor reflects
heterogeneity in convenience premia and is explained by the safety premium, the liquiditypremium, and the opportunity cost of holding money.

Authors Ballensiefen, Benedikt & Ranaldo, Angelo
Language English
Keywords Safe Asset, Near-Money Asset, Repo, Carry Trade, Asset Pricing, Short-term Interest Rates, Convenience Premium
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 18 July 2019
Series Name School of Finance Workingpaper Series
Volume 2019
Number 09
Number of Pages 62
Official URL https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
Depositing User Christina Ihasz
Date Deposited 23 Jul 2019 07:30
Last Modified 13 Dec 2019 01:23
URI: https://www.alexandria.unisg.ch/publications/257401

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Citation

Ballensiefen, Benedikt & Ranaldo, Angelo: Safe Asset Carry Trade. School of Finance Workingpaper Series, 2019, 09.

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https://www.alexandria.unisg.ch/id/eprint/257401
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