Comparing returns of US treasuries versus equities: implications for market and portfolio efficiency

Choong Tze Chua, Winston Koh and Krishna Ramaswamy ()

Applied Financial Economics, 2005, vol. 15, issue 17, 1213-1218

Abstract: We test the efficiency of the US Treasury market by comparing the performance of two yield-spread mean-reverting trades, a 'riding the yield curve' trade and a comparable strategy in the S&P Index. From 1969 to 2000, 'riding the yield curve' and the S&P index are approximately equidistant from the efficient frontier, while one yield-spread trade was highly profitable, and outperformed an equivalent investment in the S&P index by 4.3 times. The large excess returns suggest possible market inefficiencies in the market. Nevertheless, market efficiency in the US Treasury bond market appears to have improved considerably since the late 1980s, and the scope for excess returns has diminished.

Date: 2005
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DOI: 10.1080/09603100500391560

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