Seasonal Variation in Treasury Returns

Critical Finance Review, 4(1), 45-115, 2015

Rotman School of Management Working Paper No. 2620912

Posted: 21 Jun 2015

See all articles by Mark J. Kamstra

Mark J. Kamstra

York University - Schulich School of Business; Rady School of Management

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: 2015

Abstract

We document an annual cycle in the U.S. Treasury market, with variation in mean monthly returns of over 80 basis points from peak to trough. This seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, cross-hedging between equity and Treasury markets, conventional measures of investor sentiment, the weather, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, seasonalities in the Federal Open Market Committee (FOMC) cycle, or peculiarities of the sample period considered. Rather, it is correlated with a proxy for variation in risk aversion linked to seasonal mood changes. Such a model can explain more than sixty percent of the average seasonal variation in monthly Treasury returns. The White (2000) reality test suggests this is not data snooping.

Keywords: Treasury bond returns, Treasury note returns, Market seasonality, Time-varying risk aversion

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

Suggested Citation

Kamstra, Mark J. and Kramer, Lisa A. and Levi, Maurice David, Seasonal Variation in Treasury Returns (2015). Critical Finance Review, 4(1), 45-115, 2015; Rotman School of Management Working Paper No. 2620912. Available at SSRN: https://ssrn.com/abstract=2620912

Mark J. Kamstra

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Lisa A. Kramer (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
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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