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Statistical arbitrage in the U.S. treasury futures market

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  • Dare, Wale

Abstract

We argue empirically that the U.S. treasury futures market is informational inefficient. We show that an intraday strategy based on the assumption of cointegrated treasury futures prices earns statistically significant excess return over the equally weighted portfolio of treasury futures. We also provide empirical backing for the claim that the same strategy, financed by taking a short position in the 2-Year treasury futures contract, gives rise to a statistical arbitrage.

Suggested Citation

  • Dare, Wale, 2017. "Statistical arbitrage in the U.S. treasury futures market," Economics Working Paper Series 1716, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2017:16
    as

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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1716.pdf
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    References listed on IDEAS

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    1. Gur Huberman, 2005. "A Simple Approach to Arbitrage Pricing Theory," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 9, pages 289-308, World Scientific Publishing Co. Pte. Ltd..
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    3. Christensen, Jens H.E. & Diebold, Francis X. & Rudebusch, Glenn D., 2011. "The affine arbitrage-free class of Nelson-Siegel term structure models," Journal of Econometrics, Elsevier, vol. 164(1), pages 4-20, September.
    4. Friedrich Hubalek & Irene Klein & Josef Teichmayn, 2002. "A General Proof Of The Dybvig‐Ingersoll‐Ross Theorem: Long Forward Rates Can Never Fall," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 447-451, October.
    5. Alvaro Escribano & Daniel Peña, 1994. "Cointegration And Common Factors," Journal of Time Series Analysis, Wiley Blackwell, vol. 15(6), pages 577-586, November.
    6. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-126, February.
    7. Hogan, Steve & Jarrow, Robert & Teo, Melvyn & Warachka, Mitch, 2004. "Testing market efficiency using statistical arbitrage with applications to momentum and value strategies," Journal of Financial Economics, Elsevier, vol. 73(3), pages 525-565, September.
    8. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December.
    9. Dybvig, Philip H & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1996. "Long Forward and Zero-Coupon Rates Can Never Fall," The Journal of Business, University of Chicago Press, vol. 69(1), pages 1-25, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Market efficiency; U.S. treasury futures; statistical arbitrage; joint-hypothesis;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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