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The Effect of Substitute Assets on Yields in Financial Markets

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  • Ken B. Cyree
  • James T. Lindley
  • Drew B. Winters

Abstract

We examine the link between volume and liquidity in money markets where there are close substitutes. We find that the size of the market, as a proxy for trading volume, affects yield spreads over T‐bill rates. We examine the bankers acceptances market, when market size declined by half over the decade of the 1990s. Controlling for interest‐rate levels, day‐of‐the‐week, calendar, term structure, credit spread, time‐series, and cross‐equation effects, we find that the substitution effect does not eliminate the impact of market‐size changes on rates, but it does preserve the hierarchy of rates across instruments.

Suggested Citation

  • Ken B. Cyree & James T. Lindley & Drew B. Winters, 2007. "The Effect of Substitute Assets on Yields in Financial Markets," Financial Management, Financial Management Association International, vol. 36(1), pages 27-47, March.
    • Handle: RePEc:bla:finmgt:v:36:y:2007:i:1:p:27-47
    DOI: 10.1111/j.1755-053X.2007.tb00163.x
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    References listed on IDEAS

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    Cited by:

    1. Vladimir Kotomin, 2013. "The Year-End Effect In Money Market Yields: Beyond One Month And Beyond The Crisis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(2), pages 233-252, June.

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