The TIPS-Treasury Bond Puzzle
type="main"> <title type="main">ABSTRACT</title> <p>We show that the price of a Treasury bond and an inflation-swapped Treasury Inflation-Protected Securities (TIPS) issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS-Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding. We find direct evidence that the mispricing narrows as additional capital flows into the markets. This provides strong support for the slow-moving-capital explanation of arbitrage persistence.
Year of publication: |
2014
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Authors: | FLECKENSTEIN, MATTHIAS ; LONGSTAFF, FRANCIS A. ; LUSTIG, HANNO |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 69.2014, 5, p. 2151-2197
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Publisher: |
American Finance Association - AFA |
Saved in:
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