DOES THE AUCTION CYCLE HAVE AN EFFECT ON THE MOMENTUM STRATEGIES IN TURKISH BOND MARKET?

Year 2018, Volume: 6 Issue: 2, 59 - 83, 02.01.2019

İlkay ÖZTÜRK Muzaffer AKAT

Abstract

In this study, performances of momentum strategies has been documented using the 5-year and the 10-year maturity Turkish bonds between the dates March 2010 and August 2017 with various look-back periods. The U.S. 10-year maturity bond yield and the Istanbul Stock Exchange 100 total return index are found to be the best performing momentum indicators. There is an improvement of 10.46% annual return while using the U.S. 10-year maturity bond yield as the momentum indicator.

Because of the liquidity-thin emerging markets’ supply pressure of public debt, the auctions need further attention. After a minor change to (Beetsma, Giuliodori, de Jong, & Widijanto, 2013) methodology, the treasury debt auction cycle effect is calculated for the 5-year and 10-year maturity Turkish bonds. In accordance with the auction cycle effect, the employed simple momentum strategy is adjusted. This new adjusted momentum strategy improves annual returns from 0% to 6.90% (%3.5 on average) across all the momentum indicators and the look-back periods.

The time series momentum is found to be existent in the Turkish bond market for the aforementioned period.  The supply side pressure by the treasury auctions has a delaying effect on the time series momentum. Employing the other momentum indicators performs better than the bond momentum itself. The adjusted momentum strategy enhances the annual returns up to 11.46%.

Keywords

Time Series Momentum, Debt Auctions, Emerging Markets, Fixed Income, Bonds, Primary Market

DOES THE AUCTION CYCLE HAVE AN EFFECT ON THE MOMENTUM STRATEGIES IN TURKISH BOND MARKET?

Abstract

In this study, performances of
momentum strategies has been documented using the 5-year and the 10-year
maturity Turkish bonds between the dates March 2010 and August 2017 with
various look-back periods. The U.S. 10-year maturity bond yield and the Istanbul
Stock Exchange 100 total return index are found to be the best performing
momentum indicators. There is an improvement of 10.46% annual return while
using the U.S. 10-year maturity bond yield as the momentum indicator.

Because of the liquidity-thin emerging
markets’ supply pressure of public debt, the auctions need further attention.
After a minor change to (Beetsma, Giuliodori, de Jong,
& Widijanto, 2013) methodology, the treasury debt auction
cycle effect is calculated for the 5-year and 10-year maturity Turkish bonds.
In accordance with the auction cycle effect, the employed simple momentum
strategy is adjusted. This new adjusted momentum strategy improves annual
returns from 0% to 6.90% (%3.5 on average) across all the momentum indicators
and the look-back periods.

The
time series momentum is found to be existent in the Turkish bond market for the
aforementioned period.  The supply side
pressure by the treasury auctions has a delaying effect on the time series momentum.
Employing the other momentum indicators performs better than the bond momentum
itself. The adjusted momentum strategy enhances the annual returns up to
11.46%.

Keywords

Time Series Momentum, Debt Auctions, Emerging Markets, Fixed Income, Bonds, Primary Market

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