Risk and return characteristics of the swap spread arbitrage strategy
Abstract
We conduct a study on the risk and return characteristics of the swap spread
arbitrage strategy. Specifically, we investigate the two-year, three-year, five-year,
seven-year, ten-year, and an equally-weighted swap spread strategy in the US, the
UK, and Japan. We find that there is very little “arbitrage” in this fixed income
trading strategy. Furthermore, our findings suggest that the less liquid markets offer
better risk and return characteristics than the more liquid markets.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2019