The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

Paul A. Spindt; J. Ronald Hoffmeister

doi:10.2307/2331079

The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

Paul A. Spindt, J. Ronald Hoffmeister

Research output: Contribution to journal › Article › peer-review

61 Scopus citations

Abstract

The federal funds rate arguably is the most important interest rate in the U.S. capital market because it plays a central role in monetary policy and the term structure. This paper examines the micromechanics of the funds market. We show that in a continuous market with asynchronous trading, regulatory constraints and accounting conventions that focus agents’ attention on discrete time instants have important implications for the dynamics of trading activity and realized market prices. We also exhibit a model of the market that explains observed regularities in the intertemporal behavior of the funds rate.

Original language	English (US)
Pages (from-to)	401-416
Number of pages	16
Journal	Journal of Financial and Quantitative Analysis
Volume	23
Issue number	4
DOIs	https://doi.org/10.2307/2331079
State	Published - Dec 1 1988
Externally published	Yes

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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10.2307/2331079

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abstract = "The federal funds rate arguably is the most important interest rate in the U.S. capital market because it plays a central role in monetary policy and the term structure. This paper examines the micromechanics of the funds market. We show that in a continuous market with asynchronous trading, regulatory constraints and accounting conventions that focus agents{\textquoteright} attention on discrete time instants have important implications for the dynamics of trading activity and realized market prices. We also exhibit a model of the market that explains observed regularities in the intertemporal behavior of the funds rate.",

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note = "Funding Information: * Board of Governors of the Federal Reserve System, Washington, D.C. 20551, and College of Business, Arizona State University, Tempe, AZ 85287, respectively. The authors thank the JFQA referees, James Bradfield and Vance Roley, for helpful comments. The views expressed in this paper are those of the authors alone and do not necessarily reflect the opinions of the Board of Governors or its staff. The second author's research was supported in part by the College of Business Council of 100 Summer Grant Program at Arizona State University. Hoo-Hyun Kim and Roberto Sella provided excellent research assistance.",

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The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

Abstract

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