Figure 3: Volatility Across Holding Periods

Replication sample: January 1996 to December 2022
Annualized standard deviations of strip and market excess returns across holding periods from 1 to 36 months. The sharp decline in strip volatility with horizon is consistent with measurement error in option-derived strip prices.
Figure 3: Volatility Across Holding Periods

Annualized Volatility by Holding Period (%)

holding_period std_strip_rf std_mkt_rf std_strip_2y std_mkt_10y
1 40.488399 16.268800 40.538619 18.693286
6 21.900081 17.123504 22.287115 20.407188
12 16.891990 17.684217 17.291050 20.467143
18 14.980496 17.662541 15.557842 20.489718
24 14.165011 17.545685 14.854342 20.331727
30 12.950689 16.955595 13.780837 19.301990
36 12.710949 16.500178 13.476917 18.406053

Notes

Market-side volatility remains broadly flat across holding periods.

Strip volatility converges below market volatility by the 36-month horizon.