Seasonal Variation in Treasury Returns

51 Pages Posted: 20 Dec 2007 Last revised: 29 Jan 2014

Mark J. Kamstra

York University - Schulich School of Business

Lisa A. Kramer

University of Toronto - Rotman School of Management

Maurice D. Levi

University of British Columbia (UBC) - Sauder School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2014

Abstract

We document a novel and striking annual cycle in the U.S. Treasury market, with a variation in mean monthly returns of over 80 basis points from peak to trough. We show that this seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, the weather, cross-hedging between equity and Treasury markets, conventional measures of investor sentiment, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, seasonalities in the FOMC cycle, or peculiarities of the sample period considered. Rather, the seasonal pattern in Treasury returns is significantly correlated with a proxy for variation in investor risk aversion across the seasons, and a model based on that proxy is able to explain more than sixty percent of the average seasonal variation in monthly Treasury returns. The White (2000) reality test confirms that the correlation between returns and the proxy for seasonal variation in investor risk aversion cannot be easily dismissed as the simple result of data snooping.

Keywords: Treasury bond returns, Treasury note returns, market seasonality, time-varying risk aversion, SAD

JEL Classification: G02, G11, G12, E43, E44

Suggested Citation

Kamstra, Mark J. and Kramer, Lisa A. and Levi, Maurice D., Seasonal Variation in Treasury Returns (January 1, 2014). Rotman School of Management Working Paper No. 1076644. Available at SSRN: https://ssrn.com/abstract=1076644 or http://dx.doi.org/10.2139/ssrn.1076644

Mark J. Kamstra

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Lisa A. Kramer (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-2496 (Phone)
416-971-3048 (Fax)

HOME PAGE: http://www.chass.utoronto.ca/~lkramer

Maurice David Levi

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Henry Angus 865
Vancouver BC V6T 1Z2
Canada
604-822-8260 (Phone)
604-822-8521 (Fax)

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