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The money and bond markets in France : Segmentation vs. integration

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  • Dumas, Bernard
  • Jacquillat, Bertrand

Abstract

When rates of return on bonds are computed over extremely short holding periods, the ex post cross-sectional relationship between realized return and risk is linear. It is therefore possible, at any time, to extrapolate the cross-sectional relationship to a zero risk level, and thus to determine the implied instantaneous riskless rate of interest. We apply this technique to French bond price data. Using this rather unique data set in which prices are sampled daily, we are able to compare the overnight rate implied in bond price data to the actual overnight money market rate. We conclude that the two rates are significantly different, which is evidence of segmentation between the two markets. The institutional set-up prevailing in France during the sample period explains the segmentation result.
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  • Dumas, Bernard & Jacquillat, Bertrand, 1990. "The money and bond markets in France : Segmentation vs. integration," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 613-635, August.
    • Handle: RePEc:eee:jbfina:v:14:y:1990:i:2-3:p:613-635
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    Cited by:

    1. Pat Wilson & John Okunev & Guy Ta, 1994. "Are Real Estate and Securities Markets Integrated? Some Australian Evidence," Working Paper Series 42, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. John Okunev & Patrick J. Wilson, 1997. "Using Nonlinear Tests to Examine Integration Between Real Estate and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(3), pages 487-503, September.

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