The Effect of Substitute Assets on Yields in Financial Markets

Drew Winters, K Cyree, J Lindley

Research output: Contribution to journalArticle


We examine the link between volume and liquidity in money markets where there are close substitutes. We find that the size of the market, as a proxy for trading volume, affects yield spreads over T-bill rates. We examine the bankers acceptances market, when market size declined by half over the decade of the 1990s. Controlling for interest-rate levels, day-of-the-week, calendar, term structure, credit spread, time-series, and cross-equation effects, we find that the substitution effect does not eliminate the impact of market-size changes on rates, but it does preserve the hierarchy of rates across instruments.

Original languageEnglish
Pages (from-to)27 - 47
Number of pages21
JournalFinancial Management
Issue number1
StatePublished - Mar 2007


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