Sharpe and Treynor Ratios on Treasury Bonds
AbstractWe challenge asset pricing theory with numerous stylized facts regarding risk and return on U.S. Treasury securities. Most striking is our finding that reward/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.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 1 (January)
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Web page: http://www.journals.uchicago.edu/JB/
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- Medhat Hassanein & Islam Azzam, 2010. "Ex post and ex ante returns and risks under different maturities of treasury bonds: evidence from developed and emerging markets," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(1), pages 103-118.
- Michelfelder, Richard A. & Pilotte, Eugene A., 2011. "Treasury Bond risk and return, the implications for the hedging of consumption and lessons for asset pricing," Journal of Economics and Business, Elsevier, vol. 63(6), pages 582-604.
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