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

Published online by Cambridge University Press:  06 April 2009

Paul A. Spindt  and
J. Ronald Hoffmeister
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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' 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.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 23 , Issue 4 , December 1988 , pp. 401 - 416
Copyright
Copyright © School of Business Administration, University of Washington 1988

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