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.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
