We document an annual cycle in U.S. Treasuries, 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.
Seasonal Variation in Treasury Returns Available to Purchase
We thank Ivo Welch and three anonymous referees for helpful suggestions. We have benefited from conversations with Geert Bekaert, Hank Bessembinder, Michael Brennan, Hyung-Suk Choi, Ramon DeGennaro, Alex Edmans, Mark Fisher, Michael Fleming, Scott Frame, Ken Garbade, David Goldreich, Rob Heinkel, Shimon Kogan, Alan Kraus, and Monika Piazzesi. We thank seminar participants at the FRB of Atlanta, Michigan State, UBC, Maryland, Utah, and conference participants at the WFA meetings, EFA meetings, NFA meetings, and the CIPRÉE Applied Financial Time Series Workshop. We gratefully acknowledge support of the Social Sciences and Humanities Research Council of Canada. Kramer thanks the Canadian Securities Institute Research Foundation for support.
Kamstra MJ, Kramer LA, Levi MD (2015), "Seasonal Variation in Treasury Returns". Critical Finance Review, Vol. 4 No. 1 pp. 45–115, doi: https://doi.org/10.1561/104.00000021
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