Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-15T04:24:46.039Z Has data issue: false hasContentIssue false
  • English
  • Français

Arbitrage, Clientele Effects, and the Term Structure of Interest Rates

Published online by Cambridge University Press:  06 April 2009

Eliakim Katz  and
Eliezer Z. Prisman
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper derives a new and intuitive estimation procedure for the term structure under potential tax arbitrage. No a priori assumptions regarding the equality of the prices and present values of bonds are made. The data are employed to determine whether this equality holds, and an appropriate estimator is thereby endogenously derived. The suggested estimator is based on the optimizing behavior of an investor in a market with frictions, and emerges directly from the solution of the dual of the no-arbitrage optimization problem. In addition, the proposed estimator benefits from being both theoretically sound and straightforward to apply.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 26 , Issue 4 , December 1991 , pp. 435 - 443
Copyright
Copyright © School of Business Administration, University of Washington 1991

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Dammon, M. R., and Green, C. R.. ’Tax Arbitrage and the Existence of Equlibrium Prices for Financial Assets.” Journal of Finance, 42 (12 1987), 1143–1166.CrossRefGoogle Scholar
Jordan, J. V. “Tax Effects in Term Structure Estimation.” Journal of Finance, 39 (06 1984), 393–406.CrossRefGoogle Scholar
Litzenberger, R. H., and Rolfo, J.. “An International Study of Tax Effects on Government Bonds.” Journal of Finance, 39 (03 1984), 1–22.CrossRefGoogle Scholar
Prisman, E. Z. “Bond Pricing in Markets with Taxes: the Clientele Model vs. the Non-Clientele Model.” Journal of Banking and Finance, 14 (03 1990), 33–39.CrossRefGoogle Scholar
Schaefer, S. M. “Measuring a Tax Specific Term Structure of Interest Rates in the Market for British Government Securities.” The Economic Journal, 91 (06 1981), 415–438.CrossRefGoogle Scholar
Schaefer, S. M. “Tax Induced Clientele Effects in the Market for British Government Securities.” Journal of Financial Economics, 10 (07 1982a), 121–159.CrossRefGoogle Scholar
Schaefer, S. M. “Taxes and Security Market Equilibrium.” In Financial Economics: Essays in Honor of Paul H. Cootner, Sharpe, W. F. and Cootner, C. M., eds. Englewood Cliffs, NJ: Prentice-Hall (1982b), 159–178.Google Scholar