Anticipated Shocks and their Impact on Expectations: An event study of the impact of TIPS auctions on ZCIIS

Sammanfattning: This thesis has the purpose to empirically investigate how anticipated shocks that result into recurrent supply shocks are subsumed by change in expectations. More precisely, we study the price impact of Treasury Inflation Protected Securities (TIPS) auctions on the Zero-Coupon Inflation-Indexed Swap (ZCIIS) rates using an event study methodology for each of the 60 auctions of 5-, 10-, 20- and 30-year TIPS during the period 2004-2011. In our results we observe that TIPS auctions impose a significant pressure on the ZCIIS markets during the 3 to 5 days prior to and up to 10 days post the auctions in question. We find that ZCIIS rates are characterized by a decline and a following increase around auction dates giving the ZCIIS rates a rather distinctive V-shape around these dates. This pattern is consistent with other academic literature that documents a similar price pressure around Treasury auctions.