Does non-linearity help us understand, model and forecast UK stock and bond returns: evidence from the BEYR
AbstractThe usefulness of non-linear models to provide accurate estimates and forecasts remains an open empirical debate. This paper examines the nature of the estimated relationships and forecasting power of smooth-transition models for UK stock and bond returns using a range of financial and macroeconomic variables as predictors. Notably, evidence of non-linearity is stronger when the bond-equity yield ratio is used as the transition variable. This ratio measures whether stocks are over (under)-valued relative to bonds and can act as a signal for portfolio managers. In-sample results reveal noticeable differences regarding the nature of relationships between the linear and non-linear setting, while results of a recursive forecasting exercise reveal both statistical and economic improvement over a linear model. Overall, these results support the view that non-linear estimates and forecasts can provide useful information for stock market traders, portfolio managers and policy-makers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Review of Applied Economics.
Volume (Year): 26 (2012)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.tandfonline.com/CIRA20
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.