Short-Term Patterns in Government Bond Returns Following Market Shocks: International Evidence
Posted: 20 Jan 2016
Date Written: December 05, 2008
Abstract
The paper employs government bond portfolios from 17 countries so as to investigate the short-run reaction of investors to price shocks. The findings indicate a uniform return reversal pattern across countries, that persists irrespective of various robustness tests such as different data-sets (DataStream/J.P. Morgan), different maturity bands, and day-of-the-week effects. Simulated trading strategies based on our results suggest that this pattern can be employed to generate economically significant profits for many country portfolios. We also demonstrate that significant zero-investment profits are possible even when instead of the expensive to replicate country bond portfolios we employ directly tradable and low transaction cost instruments, such as Bond Futures Contracts.
Keywords: Price shocks, Government bonds, Bond futures
JEL Classification: G14, G15
Suggested Citation: Suggested Citation