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This event study of market efficiency found that prices of Treasury Inflation-Protected Securities (TIPS) adjust to inflation information without delay during the U.S. Consumer Price Index (CPI) survey period and even before the beginning of the survey period. The cumulative effect of unexpected inflation on the TIPS holding period returns peaks at the end of the survey period. After the CPI announcement, there is no discernible price adjustment.

This study investigates the presence of information risk in two closely linked interest rate securities traded in separate markets: the nominal interest rate observed in the Treasury bond market and the real interest rate observed in the relatively new Treasury Inflation-Protected Securities (TIPS) market. We find that information flows unilaterally from the Treasury bond market to the TIPS market with a one-day lag. The information risk arising from asymmetric information flows may cause less informed traders to demand a higher rate of return (O’Hara, 2003). Our study provides an empirical explanation of why the TIPS yield has been relatively high throughout its nascent trading history.

During their last coupon period, Treasury Inflation-Indexed Securities (TIIS) are transformed from inflation-protection securities into Treasury bills due to the lag effect in indexing inflation. A study of the first issue of TIIS that matured on July 15, 2002, indicates that TIIS prices in the final six months convey useful information about the market9s assessment of inflation risk. TIIS prices reveal that the market was concerned more about disinflation than inflation during the first quarter of 2002. This special period of transformation also permits a controlled experiment of the market9s ability to aggregate information about inflation; TIIS prices efficiently reflect inflation information at the time inflation takes place.

Before the introduction of Treasury Inflation-Indexed Securities (TIIS) in January 1997, the ex ante real rate in the United States was unobservable. This study describes the new Treasury security and extracts from its price a time series of ex ante real pure discount rates with a constant 10-year maturity. The study then identifies an ex ante nominal rate time series counterpart. Empirical evidence from Johansen's cointegration analysis indicates that there exists a cointegrated system between the real and nominal rates. This finding casts doubt on the accuracy of tests of the Fisher effect that infer a constant or stationary real rate.

We consider a simple model positing that initial public offering price is equal to the present value of an entity's assets in place and growth opportunities. The model predicts that initial return is positively related to both the size and risk of growth opportunities. Consistent with this prediction, we find initial return to be positively related to both the fraction of the offer price that is accounted for by the present value of growth opportunities and various proxies of issue uncertainty. We also find that IPO investors equate one dollar of growth opportunities to approximately three quarters of tangible assets.