{"title":"What drives the TIPS–Treasury bond mispricing?","authors":"Jungkyu Ahn , Yongkil Ahn","doi":"10.1016/j.jempfin.2023.101438","DOIUrl":null,"url":null,"abstract":"<div><p>Inflation-swapped Treasury Inflation-Protected Securities (TIPS) are usually undervalued compared to cash flow-matched Treasury bonds. From 2005 to 2022, TIPS discounts are persistent, averaging approximately 3.18 % of the face value, with a peak of 16.10 %. We elucidate the factors associated with this persistent mispricing and the extent of this association. The results from feature selection techniques and the variable importance-in-projection method reveal that marking-to-market concerns and intermediation frictions are key to understanding the underpricing of TIPS relative to comparable nominal Treasury securities. We conclude that when strategic concerns overwhelm fundamental analysis, asset prices could deviate from fundamental values over a prolonged period.</p></div>","PeriodicalId":15704,"journal":{"name":"Journal of Empirical Finance","volume":"74 ","pages":"Article 101438"},"PeriodicalIF":2.1000,"publicationDate":"2023-11-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Empirical Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0927539823001056","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Inflation-swapped Treasury Inflation-Protected Securities (TIPS) are usually undervalued compared to cash flow-matched Treasury bonds. From 2005 to 2022, TIPS discounts are persistent, averaging approximately 3.18 % of the face value, with a peak of 16.10 %. We elucidate the factors associated with this persistent mispricing and the extent of this association. The results from feature selection techniques and the variable importance-in-projection method reveal that marking-to-market concerns and intermediation frictions are key to understanding the underpricing of TIPS relative to comparable nominal Treasury securities. We conclude that when strategic concerns overwhelm fundamental analysis, asset prices could deviate from fundamental values over a prolonged period.
期刊介绍：
The Journal of Empirical Finance is a financial economics journal whose aim is to publish high quality articles in empirical finance. Empirical finance is interpreted broadly to include any type of empirical work in financial economics, financial econometrics, and also theoretical work with clear empirical implications, even when there is no empirical analysis. The Journal welcomes articles in all fields of finance, such as asset pricing, corporate finance, financial econometrics, banking, international finance, microstructure, behavioural finance, etc. The Editorial Team is willing to take risks on innovative research, controversial papers, and unusual approaches. We are also particularly interested in work produced by young scholars. The composition of the editorial board reflects such goals.
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