Market Trading Structures and Asset Pricing: Evidence from the Treasury-Bill Markets

Earlier studies report significant price disparities between futures and forward or spot markets. Examining the Treasury-bill markets, this article demonstrates that differences in market trading structures explain these disparities. Treasury-bill futures rates contain significantly lower liquidity and default premia than do synthetic forward rates. This reflects the functioning of a futures' clearing association and differences between an open-outcry auction futures market and an over-the-counter dealer spot market. The same factors that make futures contracts nonredundant securities also explain the existence, in equilibrium, of price disparities.