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Sources of variation in holding returns for fed funds futures contracts
Author(s) -
Hamilton James D.,
Okimoto Tatsuyoshi
Publication year - 2011
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20473
Subject(s) - predictability , futures contract , economics , variation (astronomy) , horizon , financial economics , markov chain , econometrics , term (time) , monetary economics , mathematics , statistics , physics , geometry , astrophysics , quantum mechanics
This study relates predictable gains from positions in fed funds futures contracts to violations of the expectations hypothesis of the term structure of interest rates. Although evidence for predictable gains from positions in short‐horizon contracts is mixed, we find that gains in longer horizon contracts can be well described using Markov‐switching models, with predictability associated with particular episodes in which economic activity was weak and variability in the returns to these contracts was quite high. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:205–229, 2011