Abstract
This study investigates the efficiency of the U.S. market for inflation-indexed government bonds using a signal based on inflation forecasts and evaluating the effectiveness of several trading strategies to provide abnormal returns. The market for U.S. TIPS offers the possibility to obtain excess returns if information about future inflation is combined with a trading strategy speculating on the movement of break-even inflation. These results are fairly consistent over time for the shorter maturity. Index-linked government bonds can be considered an asset class with idiosyncratic characteristics that make them an important part of an investment portfolio.
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