Safe Asset Carry Trade
Type
conference paper
Date Issued
2020-01-04
Author(s)
Abstract
We provide an asset pricing analysis of one of the main categories of near-money or safe assets, the repurchase agreement (repo). Heterogeneity in repo rates allows for a remunerative carry trade. The return on this carry trade, our carry factor, together with a market factor explain the temporal and cross-sectional variation in repo rates within a no-arbitrage framework: While the market factor determines the level of short-term interest rates, the carry factor accounts for the cross-sectional dispersion. Consistent with the safe asset literature, the carry factor reflects heterogeneity in convenience premia and is explained by the safety premium, the liquidity premium, and the opportunity cost of holding money.
Language
English
Keywords
Safe Asset
Near-Money Asset
Repo
Carry Trade
Asset Pricing
Short-term Interest Rates
Convenience Premium
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Event Title
ASSA 2020 Annual Meeting
Event Location
San Diego, California
Event Date
3. - 5. January 2020
Subject(s)
Eprints ID
258956