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The Gilt-Equity Yield Ratio and the Predictability of UK and US Equity Returns

Author

Listed:
  • Harris, R.D.F.
  • Sanchez-Valle, R.

Abstract

A number of financial variables have been shown to be effective in explaining the time-series of aggregate returns in both the UK and US equity markets. These include, inter alia, the dividend yield, the spread between the yields on long and on short bonds, and lagged equity returns. Recently, however, the gilt-equity yield ratio -the ratio between the long bond yield and the equity dividend yield- has emerged as a variable that has considerable explanatory power for equity returns in the UK. This paper compares the performance of the gilt-Equity yield ratio with these other variables in the UK and US equity markets, prividing evidence on both ex post explanatory power and ex ante predictive ability.

Suggested Citation

  • Harris, R.D.F. & Sanchez-Valle, R., 1998. "The Gilt-Equity Yield Ratio and the Predictability of UK and US Equity Returns," Discussion Papers 9815, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:9815
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    Cited by:

    1. Guidolin, Massimo & Hyde, Stuart, 2012. "Can VAR models capture regime shifts in asset returns? A long-horizon strategic asset allocation perspective," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 695-716.
    2. Durré, Alain & Giot, Pierre, 2005. "An international analysis of earnings, stock prices and bond yields," Working Paper Series 515, European Central Bank.
    3. Pierre Giot & Mikael Petitjean, 2009. "Short-term market timing using the bond-equity yield ratio," The European Journal of Finance, Taylor & Francis Journals, vol. 15(4), pages 365-384.
    4. Estrada, Javier, 2009. "The fed model: The bad, the worse, and the ugly," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 214-238, May.

    More about this item

    Keywords

    SHARES ; DIVIDENDS ; SECURITIES ; FINANCIAL MARKET;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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