The Relative Pricing of U.S. Treasury Strips: Empirical Evidence

Posted: 12 Feb 2001

See all articles by Bradford D. Jordan

Bradford D. Jordan

University of Florida; University of Florida - Department of Finance, Insurance and Real Estate

Randy D. Jorgensen

Creighton University

David R. Kuipers

University of Missouri at Kansas City - Department of Finance, Information Management, and Strategy

Abstract

We investigate pricing relations and the potential for arbitrage in the U.S. Treasury STRIPS market, stressing the importance of reconciling quoted Treasury data with actual market pricing conventions. We document that stripping and reconstitution profits in the STRIPS market are fleeting and rarely economically significant; that matched-maturity principal and coupon STRIPS generally have different prices due, at least in part, to richness or cheapness in the underlying note or bond; and that apparent negative forward rates in the STRIPS market are concentrated in certain long-maturity STRIPS that do not actually exist at the time.

Keywords: Treasury bond, treasury STRIPS, market integration, stripping, reconstitution

JEL Classification: G12; G13

Suggested Citation

Jordan, Bradford D. and Jorgensen, Randy D. and Kuipers, David R., The Relative Pricing of U.S. Treasury Strips: Empirical Evidence. Available at SSRN: https://ssrn.com/abstract=251499

Bradford D. Jordan (Contact Author)

University of Florida ( email )

Gainesville, FL 32611
United States

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Randy D. Jorgensen

Creighton University ( email )

2500 California Plaza
College of Business
Omaha, NE 68178
United States

David R. Kuipers

University of Missouri at Kansas City - Department of Finance, Information Management, and Strategy ( email )

Kansas City, MO 64110
United States

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