SPECIAL REPO RATES - AN EMPIRICAL-ANALYSIS

Duffie (1996) examines the theoretical impact of repo ''specials'' on the prices of Treasury securities and concludes that, all else the sam e, an issue on special will carry a higher price than an otherwise ide ntical issue. We examine this hypothesis and find strong evidence in s upport of it. We also examine whether the liquidity premium associated with ''on-the-run'' issues is due to repo specialness and find eviden ce of a distinct effect. Finally, we investigate whether auction tight ness and percentage awarded to dealers are related to subsequent speci alness and find that both variables are generally significant.