Working Paper: NBER ID: w3511
Authors: Alan J. Marcus; Rodney Roenfeldt; J. Clay Singleton
Abstract: We investigate the efficacy of riding the yield curve. This strategy dictates holding longer-term treasury bills when the yield curve is upwardsloping. We find that the strategy is surprisingly effective. it stochastically dominates buying and holding shorter-term bills for large subperiods, and nearly dominates for the entire sample period, 1949-1988. Our empirical results suggest that abnormal profit opportunities are available from selectively increasing the maturity of a short-term portfolio.
Keywords: Yield Curve; Treasury Bills; Investment Strategy; Financial Markets
JEL Codes: G12; G13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| riding the yield curve (E43) | higher returns (G12) |
| upward sloping yield curve (E43) | riding the yield curve (E43) |
| yield curve slope (E43) | higher returns (G12) |
| riding the yield curve (E43) | stochastically dominates buy-and-hold (C69) |
| higher returns (G12) | effective strategy (L21) |
| yield pickup (G12) | higher returns (G12) |
| yield curve slope exceeds threshold (E43) | riding the yield curve is pursued (G11) |