Questioning the Use of 90-Day Treasury Bill as a Risk-Free Asset: Evidence from Canada

10 Pages Posted: 27 Jul 2017

See all articles by Eben Otuteye

Eben Otuteye

Faculty of Management, University of New Brunswick

Mohammad Siddiquee

Department of Business Administration and Tourism and Hospitality Management, Mount Saint Vincent University

Date Written: July 25, 2017

Abstract

The choice of T-bill as a risk-free asset is flawed because it is unable to protect the investor against purchasing power risk which is the very risk that investing is all about. We use Canadian data from 1956 to 2013 to show that the T-bill returns barely keeps up with inflation. We also show that if investors hold their investment over long periods then common stock volatility has no significant negative impact on the investor’s return in the long term and the investor stands to gain from the premium of stock returns over T-bills or government bonds.

Keywords: Risk-Free Asset, T-Bill, Volatility, Risk, Value Investing

JEL Classification: G11, G12

Suggested Citation

Otuteye, Eben and Siddiquee, Mohammad, Questioning the Use of 90-Day Treasury Bill as a Risk-Free Asset: Evidence from Canada (July 25, 2017). Available at SSRN: https://ssrn.com/abstract=3009018 or http://dx.doi.org/10.2139/ssrn.3009018

Eben Otuteye

Faculty of Management, University of New Brunswick ( email )

Fredericton, New Brunswick E3B5A3
Canada

Mohammad Siddiquee (Contact Author)

Department of Business Administration and Tourism and Hospitality Management, Mount Saint Vincent University ( email )

166 Bedford Highway
Halifax, Nova Scotia B3M 2J6
Canada
902-457-6931 (Phone)
902-445-2582 (Fax)

HOME PAGE: http://www.msvu.ca

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