Sharpe and Treynor Ratios on Treasury Bonds

Posted: 5 Nov 2004

See all articles by Eugene A. Pilotte

Eugene A. Pilotte

Rutgers Business School - Camden

Frederic Sterbenz

University of Wyoming - College of Business - Department of Economics and Finance

Abstract

We challenge asset pricing theory with numerous stylized facts regarding risk and return on U.S. Treasury securities. Most striking is our finding that reward-to-risk ratios vary inversely with maturity and are incredibly high for short-term bills. Apparently investors would do much better engaging in highly leveraged investments in bills instead of purchasing long maturity bonds or common stocks. Simulations of estimated three-factor affine term structure models do not replicate the high ratios of reward to risk for bills. Other results include business cycle patterns in risk premiums, volatility, and the reward to volatility that vary with maturity.

Keywords: Sharpe ratio, Term structure, Treasury bonds, Business cycle

JEL Classification: G12, G11

Suggested Citation

Pilotte, Eugene A. and Sterbenz, Frederic P., Sharpe and Treynor Ratios on Treasury Bonds. Available at SSRN: https://ssrn.com/abstract=606821

Eugene A. Pilotte (Contact Author)

Rutgers Business School - Camden ( email )

227 Penn Street
Camden, NJ 08102
United States
856-225-6548 (Phone)

Frederic P. Sterbenz

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-5090 (Phone)
307-766-2201 (Fax)

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