Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958049 | Journal of Economics and Business | 2006 | 17 Pages |
Abstract
This paper investigates the extent of arbitrage apparent in overnight interbank markets, expanding on previous work on markets for brokered federal funds, Eurodollars, and repurchase agreements by developing a new time series importantly representing direct (nonbrokered) trades of federal funds. We find evidence of close but incomplete arbitrage among these four major market segments, though the specific calendar-day patterns of spreads and volatilities differ from those reported in earlier studies. The divergences in interest rates do not necessarily represent unrealized profit opportunities, however, as calendar-related transaction costs or other market frictions may account for the apparent incompleteness of arbitrage.
Keywords
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Authors
Selva Demiralp, Brian Preslopsky, William Whitesell,