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Short-term market timing using the bond-equity yield ratio

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Author Info
Pierre Giot
Mikael Petitjean

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Abstract

This paper takes a new look at the market-timing ability of the bond-equity yield ratio (BEYR). We compare the short-term profitability of a naive strategy based on the extreme values of the BEYR to the short-term profitability of a sophisticated strategy relying on regime switches. In contrast to previous studies, we do not document any major international evidence that these dynamic strategies deliver significantly higher risk-adjusted returns than the buy-and-hold portfolios. Moreover, the profitability of these active strategies is not improved when the equity yield, instead of the BEYR, is used as a criterion to time the market.

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Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 15 (2009)
Issue (Month): 4 ()
Pages: 365-384
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Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:365-384

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Related research
Keywords: valuation ratio; switching; regime; market timing;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Georges Dionne & Pascal François & Olfa Maalaoui, 2009. "Detecting Regime Shifts in Corporate Credit Spreads," Cahiers de recherche 0929, CIRPEE. [Downloadable!]
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