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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26673
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| Title: | Tax and Liquidity Effects in Pricing Government Bonds |
| Authors: | Elton, Edwin J.
Green, T. Clifton |
| Issue Date: | Mar-1997 |
| Series/Report no.: | FIN-97-002 |
| Abstract: | Daily data from intra-dealer government bond brokers is examined for tax
and liquidity effects. Utilizing actual trade prices rather than dealer
estimated quotes gives us a more accurate measure of market clearing
prices. Daily trading volume is also available, which provides us with a
robust measure of liquidity. We use two approaches, one of which is a
new, to create cash flow matching portfolios of similar securities and
look for pricing discrepancies associated with liquidity or tax effects.
We also look for evidence of tax and liquidity effects by including a
liquidity term when fitting a cubic spline to the after-tax yield curve.
We find evidence of tax timing options and liquidity effects. However,
the effects are much smaller than previously reported and the effects of
liquidity are primarily due to high volume bonds with long maturities. |
| URI: | http://hdl.handle.net/2451/26673 |
| Appears in Collections: | Finance Working Papers
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