Safe Asset Carry Trade
Journal
Review of Asset Pricing Studies
ISSN
2045-9920
Type
journal article
Date Issued
2022-09-09
Author(s)
Abstract
We provide the first systematic asset pricing analysis of one of the main safe asset categories, the repurchase agreement (repo). Based on the temporal and cross-sectional variation in short-term rates, we form a carry that, together with a market factor, prices these near-money assets in a linear pricing model. The carry depicts heterogeneity in nonpecuniary convenience yields of collateral assets and increases in the safety premium and the liquidity premium reflecting opportunity cost. Our carry helps explain the cross-section of short-term rates, as well as of long-term bond returns after accounting for standard bond pricing factors. (JEL E40, E41, G00, G01, G10, G11).
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Oxford University Press
Subject(s)
Eprints ID
266746