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.
Do Tax-Exempt Yields Adjust Slowly to Substantial Changes in Taxable Yields?
Journal of Futures Markets (Aug, 2008)
Dudney, Donna; Geppert, John
Dudney, Donna Associate Professor of FinanceExpertise:
Financial InstitutionsFinancial Markets & InvestingManagerial Economics
FinanceCBA 243P.O. Box 880490University of Nebraska-Lincoln Lincoln, NE 68588-0490, USA Phone: (402) 472-5695Fax: (402) email@example.comDudney, Donna Finance
Geppert, John ProfessorExpertise:
Financial Markets & Investing
FinanceCBA 229P.O. Box 880490University of Nebraska-Lincoln Lincoln, NE 68588-0490, USA Phone: (402) 472-3370Fax: (402) firstname.lastname@example.orgGeppert, John Finance