Keywords

Preferred Habitat, Expectations Hypothesis

Abstract

U.S. money market securities have been found to exhibit behavior consistent with preferred habitat for liquidity around year-ends (Griffiths and Winters (1997, 2004)). In particular, repurchase agreement and commercial paper yields tend to increase when the security begins to mature across the end of the year, and return to normal levels after the year-end obligations have been paid but before the calendar year-end. The competing hypothesis, window dressing by financial intermediaries around disclosure dates, requires that the increase in yields be sustained until after the turn of the year. This study is aimed at finding whether the behavior of international money markets around year-ends and quarter-ends is more consistent with preferred habitat for liquidity or window dressing. This is done by analyzing changes in LIBOR for different currencies around quarter-ends. A second part of the study considers the effect of preferred habitat on the term structure of short-term interest rates. The expectations hypothesis of the term structure posits that future expected interest rates are implied by the current term structure. Empirical research suggests that the expectations hypothesis often does not hold, especially at the short end of the term structure. Preferred habitat for liquidity in short-term rates may be one of the reasons for the failure of expectations. The same LIBOR data set is used to test for the expectations in the presence of preferred habitat for liquidity. The empirical results of this study suggest that preferred habitat for liquidity in the short-term rates around quarter-ends and year-ends is not responsible for the failure of the expectations hypothesis in the data.

Notes

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Graduation Date

2005

Semester

Summer

Advisor

Smith, Stanley

Degree

Doctor of Philosophy (Ph.D.)

College

College of Business Administration

Department

Finance

Degree Program

Business Administration

Format

application/pdf

Identifier

CFE0000583

URL

http://purl.fcla.edu/fcla/etd/CFE0000583

Language

English

Release Date

August 2007

Length of Campus-only Access

None

Access Status

Doctoral Dissertation (Open Access)

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