These abnormal returns can be reaped with fully no-peek-ahead strategies and after accounting for transaction costs.
We find a strong link between the periods of highest profitability and conditions of reduced market liquidity.
This suggests that, as observed in recent liquidity studies on US Treasuries, temporary deviations from market efficiency at the long end of the swap curve occur when pseudo-arbitrageurs do not have sufficient capital to correct the mispricings.
|Type :||Academic Publication|
|Editor :||Journal of Empirical Finance|