Evidence on the Extent and Potential Sources of Long Memory in U.S. Treasury Security Returns and Yields


  • We gratefully acknowledge helpful comments on earlier work made by seminar participants at the University of Toronto, the University of North Carolina–Chapel Hill, the January 2000 Econometric Society meetings, and the June 2001 meetings of the Society for Computational Economics at Yale University. This work has been supported by the Turkish Academy of Sciences, in the framework of the Young Scientist Award Program (EA-TÜBA-GEBÝP/2001-1-1). Comments and suggestions from Kit Baum, Basma Bekdache, Patrick Conway, Kris Jacobs, Mark Jensen, Bill Parke, Michael Salemi, the editor, Paul Evans, and two anonymous referees led to a much-improved paper. We are grateful to Aaron Smith for sharing his GAUSS code, to Gautam Kaul and Jennifer Conrad for making the original data set available to us, and to Paisan Limratanamongkol for updating the data.


Unlike equity returns, many fixed-income return measures appear to display long memory. We show that the extent of long memory differs strongly for gross and excess holding period returns on U.S. Treasury securities. Granger and others have argued that long memory may only reflect infrequent structural breaks. We explore the impact of structural instability on tests for long memory and find only weak indications that it lies behind the long memory in our return series. The evidence of long memory remains strong for yield and term premia series even after accounting for a series of potential underlying structural changes.