The behavior of commercial paper rates: data frequencies and great events
Authors: Chih-Hsiang Chang
Journal: Chia Da Management Review. Jun. 2013, 33(1): 65-104.
Keywords: Commercial paper rates; Data frequencies; Great events; Mean reversion; Random walk
Abstract:
The behavior of short-term interest rates has been examined in numerous studies because portfolios, including
money market instruments, are popular with investors. This study examines the dynamics of commercial paper
rates across the four different frequencies (i.e., daily, weekly, monthly, and quarterly data) and the
influence of the five great events (i.e., the Taiwan Strait missile crisis, the Asian financial crisis, the
921 earthquake, the 2000 presidential election, and the 911 terrorist attacks) on commercial paper rate
behavior. The empirical results indicate that first the daily, weekly, monthly, and quarterly returns on
commercial papers are all negatively autocorrelated in the “very" long term (more than 20 years). Second, the
great events have an important impact on the mean-reverting speed of commercial paper rates. Third, the level
of commercial paper rates is crucial to the determination of commercial paper rate volatility. Finally, the
rejection of the random walk hypothesis of commercial paper rates for low frequency data (monthly and
quarterly data) is stronger than that for high frequency data (daily and weekly data).