Séverac, Béatrice deFonseca, José S. da2022-11-232022-11-232021Séverac, Béatrice de e José S. da Fonseca (2021). "Relative pricing of French Treasury inflation-linked and nominal bonds : an empirical approach using arbitrage strategies". Portuguese Economic Journal, 20(3):273-2951617-982X1617-9838 (online)http://hdl.handle.net/10400.5/26171This paper investigates whether arbitrage opportunities exist between inflation-linked bonds and nominal bonds on the French Treasury market. Following arbitrage theory, we apply the risk hedging concept: we set up self-financing portfolios hedged against risks through durations of different orders. Perfectly hedged portfolios are those with a zero initial and a zero final value. The results show arbitrage gains when the first three duration orders are implemented, but they are not significantly different from zero when a fourth-order duration is added. Furthermore, a regression of arbitrage gains on the illiquidity measure of nominal and index Treasury bonds provides evidence that the illiquidity of inflation-linked bonds significantly explains arbitrage gains, whereas the illiquidity measure of nominal bonds does notengArbitrageDurationInflation-linked bondsReal interest ratesInflation riskjournal article10.1007/s10258-020-00185-1