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Relative pricing of French Treasury inflation-linked and nominal bonds: an empirical approach using arbitrage strategies.
- Source :
- Portuguese Economic Journal; Sep2021, Vol. 20 Issue 3, p273-295, 23p
- Publication Year :
- 2021
-
Abstract
- This paper investigates whether arbitrage opportunities exist between inflation-linked bonds and nominal bonds on the French Treasury market. Following arbitrage theory, we apply the risk hedging concept: we set up self-financing portfolios hedged against risks through durations of different orders. Perfectly hedged portfolios are those with a zero initial and a zero final value. The results show arbitrage gains when the first three duration orders are implemented, but they are not significantly different from zero when a fourth-order duration is added. Furthermore, a regression of arbitrage gains on the illiquidity measure of nominal and index Treasury bonds provides evidence that the illiquidity of inflation-linked bonds significantly explains arbitrage gains, whereas the illiquidity measure of nominal bonds does not. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 1617982X
- Volume :
- 20
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Portuguese Economic Journal
- Publication Type :
- Academic Journal
- Accession number :
- 151880440
- Full Text :
- https://doi.org/10.1007/s10258-020-00185-1