Profiting from Mean-Reverting Yield Curve Trading Strategies

• Main Authors: CHUA, Choong Tze, KOH, Winston T. H., Ramaswamy, Krishna
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: Econometrics; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/456; https://ink.library.smu.edu.sg/context/soe_research/article/1455/viewcontent/Profiting_from_Mean_Reverting_Yield_Curve_Trading_Strategies.pdf
• Institution: Singapore Management University

This article studies a set of yield curve trading strategies that are based on the view that the yield curve mean reverts to an unconditional curve. These mean-reverting trading strategies exploit deviations in the level, slope, and curvature of the yield curve from historical norms. Some mean-reverting strategies were found to have significant positive profits. Furthermore, the profitability of one of these strategies significantly outperforms, on a risk-adjusted basis, alternative strategies of an investment bond or equity index.