Department of Finance
Date of this Version
8-2008
Abstract
This paper examines the profitability of two futures trading strategies: a municipal bond futures contract strategy and a spread strategy consisting of a municipal bond futures contract and a Treasury bond futures contract. Both strategies are designed to exploit a slow municipal yield adjustment following changes in Treasury yields. We find economically significant profits to both strategies. Average holding period returns per trade for both strategies tend to increase with the magnitude of the Treasury yield change. Profit distributions associated with various Treasury yield change thresholds tend to be positively skewed, and median profits are significantly lower than average profits. The profitability results are consistent with slow municipal yield adjustments.
Comments
Published in The Journal of Futures Markets 28:8 (2008), pp. 763–789; doi 10.1002/fut.20332 Copyright © 2008 Wiley Periodicals, Inc. Used by permission. http://www.interscience.wiley.com/journal/34434