Riding the yield curve: a spanning analysis

Galvani, Valentina; Landon, Stuart

doi:10.1007/s11156-011-0267-7

Cited by 7 publications

(3 citation statements)

References 40 publications

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“…Similar can be found in some riding-the-yield-curve literature. Consistent with the liquidity premium theory (see Hicks (1939); Kessel (1965)) riding strategies produce higher average returns, but do not necessarily yield excess risk-adjusted returns (see Pelaez (1997); Galvani and Landon (2013)). This is in line with the pure expectations theory (see Fisher (1896)).…”

Section: Literature and Hypothesesmentioning

confidence: 88%

“…Chua, Koh, and Ramaswamy (2005) provide evidence for and against riding. A recent study from Galvani and Landon (2013) provides no support for the riding-theyield-curve investment strategy in Canada and the USA. The authors examine ex post average returns and the Sharpe Ratio, as is usually the case, and use in addition the spanning analysis to provide formal statistical evidence.…”

Section: Literature and Hypothesesmentioning

confidence: 98%

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Performance of Maturity Transformation Strategies

2020

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Research questionMaturity transformation is an important source of both profit and risk for banks. As a result of customers' wishes for long-term fixed interest rates for loans on the one hand and short-term availability of deposits on the other, in the typical bank balance sheet long-term assets are refinanced in the short term. With a normal yield curve, such a maturity transformation leads to positive profit contributions as interest rates for shorter maturities are lower than those for longer maturities. However, the differences in maturities are also associated with an interest rate risk. As maturity transformation can be managed separately from customer business, the study examines whether dominant maturity transformation strategies can be identified from a risk/return perspective. ContributionThe study analyses the success of maturity transformation strategies for both high and low interest rate phases. The data is based on the yields of listed German Government par bonds. Synthetic maturity transformation strategies based on the concept of moving averages are constructed and compared in terms of return, risk and performance measured as risk/return relation. The analyses are carried out both from a periodic earnings-based and market value-based perspective. ResultsOur analyses show that the return and risk from maturity transformation increases with increasing maturity differences in each interest rate phase and regardless of the underlying perspective (earningsor value-based). In addition, dominant maturity transformation strategies for short to medium maturities can be observed for the currently prevailing low-interest phase. Nichttechnische Zusammenfassung FragestellungFristentransformation ist eine bedeutende Erfolgs-, aber auch Risikoquelle für Banken. Bedingt durch die Wünsche der Kunden nach langfristiger Zinsfestschreibung von Krediten auf der einen und kurzfristiger Verfügbarkeit von Einlagen auf der anderen Seite werden in der typischen Bankbilanz langfristige Aktiva kurzfristig refinanziert. Eine derartige Fristentransformation führt bei einer normalen Zinsstrukturkurve zu positiven Erfolgsbeiträgen, da kürzere Laufzeiten niedriger als längere Laufzeiten verzinst werden. Mit den Laufzeitunterschieden ist aber gleichzeitig ein Zinsänderungsrisiko verbunden. Da die Fristentransformation losgelöst vom Kundengeschäft gesteuert werden kann, untersucht die Studie in dem Papier, ob sich unter Rendite-/Risikogesichtspunkten dominante Fristentransformationsstrategien identifizieren lassen. Beitrag Die Studie analysiert den Erfolg von Fristentransformationsstrategien sowohl für Hoch-als auch Niedrigzinsphasen. Die Daten basieren auf den Renditen deutscher Staatsanleihen. Es werden Fristentransformationsstrategien auf Basis des Konzepts der gleitenden Durchschnitte konstruiert und im Hinblick auf Rendite, Risiko und Performance im Sinne von Rendite/Risikoverhältnis verglichen. Die Analysen erfolgen sowohl aus periodischer Erfolgs-als auch aus barwertorientierter Perspektive. Ergebnisse Unsere Analysen zeig...

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Section: Literature and Hypothesesmentioning

confidence: 88%

Section: Literature and Hypothesesmentioning

confidence: 98%

Performance of Maturity Transformation Strategies

2020

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“…RYCS is practically not considered in the specialized Russian financial and economic literature, and in foreign literature its most complete description is presented in the fundamental works by F.J. Fabozzi [17][18][19]. A detailed consideration of this strategy with an analysis of its practical use also can be found in the papers by V. Galvani and S. Landon [20], D. Bieri and L. Chincarini [21], R. Cox and J. Felton [22], Z. Wei, W. Xianhua and W. Guofu [23].…”

Section: Introductionmentioning

confidence: 99%

Robotizing bond portfolio selection on the Russian debt market on the basis of a modified strategy of riding the yield curve

Korobov¹,

Semernina²,

Usmanova³

et al. 2021

Bus. Inform.

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The modern global debt market features historically low average interest rates, convergence of yields on bonds with different maturities, an increase of yield curve inversion emergence frequency and a large-scale trend to automate financial decision making. The researchers’ attention in these fields is mainly focused on designing models that describe the state of the debt market as whole or its individual instruments in particular, as well as on risk management methods. At the same time, the specialized literature offers very few works concerning the topic of computer algorithms for bond portfolio selection based on traditional or advanced investment strategies. The aim of the present research is to create a modification of the existing algorithm of riding the yield curve strategy application, employing, first, average bond yield over the holding period instead of traditional bond yield to maturity; second, a developed algorithm for calculating the market spread on bonds; and, third, alternative risk evaluation indicators (compensation coefficients), which allow us to measure objectively price risk, liquidity risk, transaction costs risk and a general risk. The modification and the development of the algorithm for calculating the market spread were carried out using the direct measurement of the result technique, which entails application of the strategy to the data on bond issues received through the Moscow Exchange API. The selection of financial instruments was conducted in all sectors of the Russian debt market: public bonds, sub-federal and municipal bonds, corporate bonds. The modified algorithm enabled us to get extra yield for each selected bond issue, thereby proving the high effectiveness of the technique compared to the traditional strategy. Software implementation of the algorithm can be integrated into any robotized or semi-robotized stock exchange trading application.

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Nominal interest rates and stationarity

Cerrato

Kim

MacDonald

2012

Rev Quant Finan Acc

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). We would like to thank Karim Abadir for his helpful comments and suggestions. AbstractThis paper investigates the (break) stationarity null hypothesis using data for 25 interest rates with di¤erent maturities and risk characteristics in Canada and the US. In contrast to a large part of the literature, this paper reports strong empirical evidence in favour of the null hypothesis of stationarity for the interest rate series.

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Riding the yield curve: a spanning analysis

Abstract: Short excerpts of these working papers may be quoted without explicit permission provided that full credit is given to the source.

Cited by 7 publications

References 40 publications

Performance of Maturity Transformation Strategies

Performance of Maturity Transformation Strategies

Robotizing bond portfolio selection on the Russian debt market on the basis of a modified strategy of riding the yield curve

Nominal interest rates and stationarity

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