We investigate the efficacy of riding the yield curve. This strategy dictates holding longer-term treasury bills when the yield curve is upwardsloping. We find that the strategy is surprisingly effective. it stochastically dominates buying and holding shorter-term bills for large subperiods, and nearly dominates for the entire sample period, 1949-1988. Our empirical results suggest that abnormal profit opportunities are available from selectively increasing the maturity of a short-term portfolio. Rctiri Grieves Fera1 Hc Loan lkrtgage Coiporatjon 1759 Bosiness Center Drive £0 Box 4115 Reston, Virginia 22090 Alan J. Mars Bton college Sd1 of 4anagent Ftilton 312 thesthut Hill, MA 02167 RIDING THE YIELD CURVE: REPRISE Riding the yield curve is a strategy of buying longer-dated bills when the yield curve is upward-sloping and selling them prior to maturity in the hope or expectation of collecting any term premium that may exist. For example, three ways of holding money for the next 30 days would be: (1) buy a 30-day bill and allow it to mature; (2) buy a 60-day bill and sell it as a 30-day bill 30 days hence; or (3) buy a 90-day bill and sell it as a 60-day bill 30 days hence. Choices (2) and (3) are "riding the yield curve." While the practitioner literature (e.g., Stigum, 1983) cites this strategy as a common means of enhancing returns, it is by no means obvious that such a strategy ought to be pursued. First, if the expectations hypothesis is valid, riding the yield curve should not improve returns. If the strategy is pursued because the yield curve is upward-sloping, then interest rates should, on average. rise by just enough to equalize holding period returns on all bills. Alternatively, if there is a risk-related term premium, riding the yield curve should simultaneously increase both risk and return. In principle, this strategy ought not improve the risk-reward profile (nor should any costless_to_compute rule enhance performance). Righer-sloped yield curves ought to reflect some combination of increasing expected interest rates and increased interest-rate risk. Nevertheless, Dyl and Joehnic (1981) provide positive evidence on the efficacy of riding the yield curve. Using data for the

W ith a positively sloped U.S. Treasury bill curve, an investor receives additional yield for holding a bill with extended maturity. This additional yield is compensation for the additional risk of the longer security or the market's implicit forecast of a rise in interest rates. Investors who seek to profit from the tendency for yields to fall relative to this forecast as bills age are said to be pursuing a strategy of "riding the yield curve." We examine the effectiveness of this strategy using a comprehensive sample of U.S. Treasury bills.The strategy is as simple as it is well-known. Suppose an investor has a three-month holding period and considers two potential strategies. First, buy a three-month bill and mature it. Second, buy a sixmonth bill (or longer), and sell it after three months. If the yield curve is upward-sloping and does not change over the next three months, the six-month bill will earn a higher return because of the increase in price due to the decrease in yield relative to the forecast at which it is priced. McEnally [1981] refers to this effect as the price change due to maturity shift. Accordingly, investors will collect an additional return.For example, suppose that a 91-day bill and a 182day bill are yielding 5% and 5.25% on a discount basis, respectively (5.06% and 5.39% as money market yields). Buying and maturing the 91-day bill will generate a 91day return of 1.28%. Buying the 182-day bill and selling after 91 days will generate a 1.43% return over the same 91-day period if the yield curve remains unchanged. ROBIN GRIEVES is with HSBCSecurities in New York (NY 10005).

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Purpose -This article aims to explore three facets of the historical performance of a sample of actively managed unit trusts available to New Zealand investors: asset allocation, style analysis, and return attribution. Design/methodology/approach -Because New Zealand does not require unit trusts to disclose their security holdings, the paper used returns-based style analysis to infer how these trusts have allocated their funds among asset classes. Findings -The research has found that, for unit trusts available to New Zealand investors, asset allocation can explain a significant amount of the differences in return across time and between trusts. Across time, asset allocation accounts for about 80 per cent of the variation in actual return. Between trusts, asset allocation explains about 60 per cent of the variation in returns. From either perspective, the choice of asset allocation is an important factor in explaining returns. Originality/value -The paper suggests that active management barely earns its fees and that passive investments might do as well or better.

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