There is a persistent gap between the returns of certificates of deposit and treasury bills that cannot be explained risk and liquidity. Investors are sacrificing returns to not receive information, which is a likely explanation for this anomaly. I develop a methodology that controls for monetary policy and focuses on the difference between these two instruments at 6 different sizes and maturities. It identifies market movements in correlation with uncertainty on the financial market, which would be supportive of an ostrich effect. I do not find enough evidence to support the theory that investors behave like ostriches in times of uncertainty, namely, avoiding information that might be unsettling. Expected stock market volatility had a reverse causal effect on the illiquidity premium, not the other way around like the ostrich effect would predict.

Additional Metadata
Keywords ostrich effect fixed income certificate of deposit treasury bill illiquidity premium
Thesis Advisor X. Yu
Persistent URL hdl.handle.net/2105/44392
Series Economics
Citation
D.F. Polman. (2018, November 29). The ostrich effect in fixed income markets. Economics. Retrieved from http://hdl.handle.net/2105/44392