Beyond segmentation: The case of China's repo markets [An article from: Journal of Banking and Finance]

This digital document is a journal article from Journal of Banking and Finance, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper explores the reasons behind the discrepancy between interest rates in China's two repurchase agreement (repo) markets, the interbank repo market and the exchange-traded repo market. The repo rates in the exchange market are at times, significantly higher than those in the interbank market, especially in the first three years of the 2000-2005 sample period. While market segmentation clearly hinders arbitrage, the causes of the repo rate discrepancy are related to the alternative investment opportunities available to market participants and to the volatility differences in the repo rates.