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

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%