The Effect of Auctions on Daily Treasurybill Volatility Corresponding Author.pdfVIP

The Effect of Auctions on Daily Treasury-bill Volatility Michael P. Hughes Francis Marion University Stanley D. Smith SunTrust Chair of Banking University of Central Florida, and Drew B. Winters Texas Tech University March 29, 2005 Corresponding Author Drew B. Winters Texas Tech University Rawls College of Business Area of Finance th Street and Flint Avenue 15 Lubbock, TX 79409-2101 Phone 806-742-3350 Fax 806-742-3197 Email wintersd@ The Effect of Auctions on Daily Treasury-bill Volatility Abstract We investigate the Treasury bill (T-bill) market for volatility effects, and especially any volatility introduced by the T-bill auction process. We use daily T-bill yields for on-the- run 13-, 26-, and 52-week T-bills from January 1983 through December 2000. We find that T-bill volatility is not constant across a run, hence is not consistent with the Treasurys auction process intent of a stable T-bill market. Additionally, we note that the daily volatility patterns of 13-week and 26-week T-bills are quite similar, while the daily volatility pattern in 52-week T-bills is clearly different. One fundamental difference with 52-week T-bills is the timing of its auction cycle. When 52-week T-bills were auctioned, they were auctioned every four weeks as opposed to every week, as is the case with 13- and 26-week T-bills. In a unique test of the effect of auctions on daily volatility, we find that for 52-week T-bills issue-weeks demonstrate greater volatility than non-issue-weeks at the end of a run