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| Author: | Jankowitsch, R. Nettekoven, M. |
| Title: | Trading strategies based on term structure model residuals |
| Journal: | European Journal of Finance
2008 : APR/JUN, VOL. 14:3-4, p. 281-298 |
| Index terms: | bond markets market efficiency trading strategy bonds pricing models |
| Language: | eng |
| Abstract: | This study provides empirical evidence for the German government bond market that risk-adjusted trading strategies based on bond pricing errors can produce about 15 basis points per annum abnormal return compared to benchmark portfolios. In addition, the abnormal returns are continuously achieved over the whole time period and not randomly on a few days. There is shown a relation to changes in the level and the curvature of the term structure of interest rates. Therefore, pricing errors contain economic information about deviations of bond prices from general market conditions not being exclusively caused by model misspecification and/or differences in liquidity and tax treatment of individual bonds. |
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