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Short-term market timing using the Bond-Equity Yield Ratio

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  • GIOT, Pierre
  • PETITJEAN, Mikael

Abstract

The Bond-Equity Yield Ratio (BEYR) has recently become a popular relative pricing tool favored by market practitioners. In this paper 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 more sophisticated strategy relying on regime switches. Although the latter seems to perform better than the former, there is no overwhelming international evidence that these dynamic strategies deliver significantly higher risk-adjusted returns than the buy-and-hold portfolios. In addition, the profitability of these active strategies does not appear to be significantly different when the equity yield, instead of the BEYR, is used as criterion to time the market.

Suggested Citation

  • GIOT, Pierre & PETITJEAN, Mikael, 2006. "Short-term market timing using the Bond-Equity Yield Ratio," CORE Discussion Papers 2006090, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2006090
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    Cited by:

    1. Lleo, Sébastien & Ziemba, William T., 2015. "Some historical perspectives on the Bond-Stock Earnings Yield Model for crash prediction around the world," International Journal of Forecasting, Elsevier, vol. 31(2), pages 399-425.
    2. Qin, Duo & He, Xinhua, 2012. "Modelling the impact of aggregate financial shocks external to the Chinese economy," BOFIT Discussion Papers 25/2012, Bank of Finland, Institute for Economies in Transition.
    3. Georges Dionne & Pascal François & Olfa Maalaoui Chun, 2009. "Detecting Regime Shifts in Corporate Credit Spreads," Cahiers de recherche 0929, CIRPEE.

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