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The Efficiency of the Treasury Bill Futures Market: An Analysis of Alternative Specifications

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  • Vignola, Anthony
  • Dale, Charles

Abstract

Until the existence of financial futures, testing the determinants and the informational content of futures market prices has been difficult because of the vagaries associated with commodity markets. In the case of Treasury bill futures, the existence of an active secondary market and the resulting term structure of interest rates enables one to test alternative hypotheses about the prices of futures contracts. This study compares two alternative specifications of equilibrium futures prices, i.e., those implied by carrying charges and those derived from the unbiased expectations hypothesis of the theory of the term structure of interest rates. In general, the results show that the overnight cost-of-carry model is better for explaining futures prices than are forward rates derived from the yield curve.

Suggested Citation

  • Vignola, Anthony & Dale, Charles, 1980. "The Efficiency of the Treasury Bill Futures Market: An Analysis of Alternative Specifications," MPRA Paper 48812, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48812
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    References listed on IDEAS

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    1. Baker, Charles C, Jr & Vignola, Anthony J, 1979. "Market Liquidity, Security Trading, and the Estimation of Empirical Yield Curves," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 131-135, February.
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    3. Capozza, Dennis R & Cornell, Bradford, 1979. "Treasury Bill Pricing in the Spot and Futures Markets," The Review of Economics and Statistics, MIT Press, vol. 61(4), pages 513-520, November.
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    5. Vignola, Anthony & Dale, Charles, 1979. "Is the Futures Market for Treasury Bills Efficient?," MPRA Paper 48762, University Library of Munich, Germany.
    6. Thomas D. Simpson, 1979. "The market for federal funds and repurchase agreements," Staff Studies 106, Board of Governors of the Federal Reserve System (U.S.).
    7. Hamburger, Michael J & Platt, Elliott N, 1975. "The Expectations Hypothesis and the Efficiency of the Treasury Bill Market," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 190-199, May.
    8. Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dale, Charles & Zyren, John, 1996. "Noncommercial Trading in the Energy Futures Market," MPRA Paper 47463, University Library of Munich, Germany.
    2. Robert W. Kolb & Gerald D. Gay, 1985. "A Pricing Anomaly In Treasury Bill Futures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 8(2), pages 157-167, June.
    3. Dale, Charles, 1991. "Economics of Energy Futures Markets," MPRA Paper 47447, University Library of Munich, Germany.
    4. Charles Dale, 1981. "The hedging effectiveness of currency futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 1(1), pages 77-88, March.
    5. Dale, Charles, 1981. "Brownian motion in the treasury bill futures market," MPRA Paper 46530, University Library of Munich, Germany.
    6. Vignola, Anthony & Dale, Charles & Federal Reserve System, Federal Reserve Staffs, 1979. "Treasury/Federal Reserve Study of Treasury Futures Markets Volume II: A Study by the Staffs of the U.S. Treasury and Federal Reserve System," MPRA Paper 58897, University Library of Munich, Germany.
    7. Dale, Charles & Workman, Rosemarie, 1981. "Measuring patterns of price movements in the Treasury bill futures market," MPRA Paper 48639, University Library of Munich, Germany.
    8. Jergensen, Dale William, 1982. "An investigation of uses for financial futures in the agricultural equipment industry," ISU General Staff Papers 1982010108000017436, Iowa State University, Department of Economics.

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    More about this item

    Keywords

    Futures Markets; Hedging; Treasury Bill Futures;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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