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The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market

Author

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  • David Goldreich
  • Bernd Hanke
  • Purnendu Nath
Abstract
This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and future liquidity. We compare a variety of (microstructure-based) direct measures of liquidity to compare their effects on prices. We show that the liquidity premium depends primarily on the amount of remaining future liquidity.

Suggested Citation

  • David Goldreich & Bernd Hanke & Purnendu Nath, 2005. "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market," Review of Finance, European Finance Association, vol. 9(1), pages 1-32.
    • Handle: RePEc:oup:revfin:v:9:y:2005:i:1:p:1-32.
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    File URL: http://hdl.handle.net/10.1007/s10679-005-2986-x
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