Persistent Link:
http://hdl.handle.net/10150/184269
Title:
Efficiency of the T-bill futures market.
Author:
Lin, James Wu-Hsiung.
Issue Date:
1987
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
Part I of this dissertation examines the effect of financing costs on the efficiency of the T-bill futures market. The cost-of-carry model is used and three types of financing costs are selected as proxies for RP (repurchase agreement) rates. The results suggest that the cost-of-carry model assuming a constant RP rate is unreliable in explaining the pricing of T-bill futures. A search for "true" financing costs shows that such financing costs could be a nonlinearly weighted rate of the term RP rate (or the 90-day-maturity T-bill rate) and the federal funds rate. Theoretically implied RP rates in the year of 1983 are also generated for comparisons. Part II examines the impact of inflation uncertainty on the futures-forward rate differential. The cost-of-carry model assuming a constant RP rate ignores the future fluctuations of financing costs. A "risk premium" could arise due to inflation uncertainty. This part provides evidence that there exists a systematic relationship between the daily futures-forward rate differences and the inflation rate. Part III provides a theoretical treatment of the optimal arbitrage investment under uncertainty and of equilibrium pricing in the T-bill futures market. A dynamic stochastic programming model shows that a "myopic" property exists in the T-bill futures market in the sense that expectations of the future one-period price movements do not exert an impact on the current optimal arbitrage investment decision under uncertainty. It shows, however, that such a "myopic" property is not pure in that expectations of financing costs in the next period affect the investment decision in the current period. Equilibrium pricing of the T-bill futures is obtained under arbitrage arguments. It shows that an equilibrium price is achieved at the point where the expected current one-period arbitrage profits are zero when cost-of-carry is required, even in a multi-period setting.
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Treasury bills.; Financial futures.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Business Administration; Graduate College
Degree Grantor:
University of Arizona

Full metadata record

DC FieldValue Language
dc.language.isoenen_US
dc.titleEfficiency of the T-bill futures market.en_US
dc.creatorLin, James Wu-Hsiung.en_US
dc.contributor.authorLin, James Wu-Hsiung.en_US
dc.date.issued1987en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractPart I of this dissertation examines the effect of financing costs on the efficiency of the T-bill futures market. The cost-of-carry model is used and three types of financing costs are selected as proxies for RP (repurchase agreement) rates. The results suggest that the cost-of-carry model assuming a constant RP rate is unreliable in explaining the pricing of T-bill futures. A search for "true" financing costs shows that such financing costs could be a nonlinearly weighted rate of the term RP rate (or the 90-day-maturity T-bill rate) and the federal funds rate. Theoretically implied RP rates in the year of 1983 are also generated for comparisons. Part II examines the impact of inflation uncertainty on the futures-forward rate differential. The cost-of-carry model assuming a constant RP rate ignores the future fluctuations of financing costs. A "risk premium" could arise due to inflation uncertainty. This part provides evidence that there exists a systematic relationship between the daily futures-forward rate differences and the inflation rate. Part III provides a theoretical treatment of the optimal arbitrage investment under uncertainty and of equilibrium pricing in the T-bill futures market. A dynamic stochastic programming model shows that a "myopic" property exists in the T-bill futures market in the sense that expectations of the future one-period price movements do not exert an impact on the current optimal arbitrage investment decision under uncertainty. It shows, however, that such a "myopic" property is not pure in that expectations of financing costs in the next period affect the investment decision in the current period. Equilibrium pricing of the T-bill futures is obtained under arbitrage arguments. It shows that an equilibrium price is achieved at the point where the expected current one-period arbitrage profits are zero when cost-of-carry is required, even in a multi-period setting.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectTreasury bills.en_US
dc.subjectFinancial futures.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineBusiness Administrationen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.identifier.proquest8804179en_US
dc.identifier.oclc700047781en_US
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