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Sources of Variation in Holding Returns for Fed Funds Futures Contracts, CQER Working Paper 09-03

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Sources of Variation in Holding Returns for Fed Funds Futures Contracts, CQER Working Paper 09-03

DATE: October 26, 2009

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ABSTRACT: This paper 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.

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Federal Reserve Bank of Atlanta. "Sources of Variation in Holding Returns for Fed Funds Futures Contracts, CQER Working Paper 09-03" in Center for Quantitative Economic Research Working Papers (October 26, 2009). https://fraser.stlouisfed.org/title/7165/item/656233, accessed on December 2, 2023.

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NOTE: JEL classification: E40, E50, G13

Key words: federal funds, futures, monetary policy, Markov switching

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