Predictable End-of-Month Treasury Returns

40 Pages Posted: 22 Aug 2019

See all articles by Jonathan Hartley

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students

Krista Schwarz

University of Pennsylvania - Finance Department

Date Written: August 20, 2019

Abstract

We document a distinct pattern in the timing of excess returns on coupon Treasury securities. Average returns are positive and highly significant in the last few days of the month, and are not significantly different from zero at other times. A long Treasury position for just the last few days of each month gives a high annualized Sharpe ratio of around 1. We attribute this pattern to window dressing and portfolio rebalancing. We find evidence in quantities that aggregate insurer transactions contribute to the end-of-month price pattern. In particular life insurers are large net buyers of Treasury securities on benchmark index rebalancing dates.

Keywords: Treasury yields, excess returns, month-end, portfolio rebalancing

JEL Classification: G12, G14

Suggested Citation

Hartley, Jonathan and Schwarz, Krista, Predictable End-of-Month Treasury Returns (August 20, 2019). Available at SSRN: https://ssrn.com/abstract=3440417 or http://dx.doi.org/10.2139/ssrn.3440417

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students ( email )

Cambridge, MA
United States

Krista Schwarz (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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