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The Yield Curve as a Stock Market Timing Indicator - Emprical Analysis of International Stock Markets

  • Despite its simplicity, the yield curve is one of the best predictors of future economic activity. Empirical studies suggest that the yield curve is capable of forecasting recessions in major economies. In this paper, the relationship between the yield curve and stock bear markets will be studied with the focus on predicting bear markets in the U.S. and Germany. Also this paper seeks to answer the question if a market-timing strategy, based on yield-curve information, can outperform the market. The results of this study suggest that for the U.S. the spread between 10-year and 1-year interest rates outperforms other spreads in predicting bear markets. Furthermore, the yield spread can be used to profitably time the market and outperform a buy-and-hold strategy. For the Germany yield curve, the study has found a statistical significant relationship between the yield curve and bear markets. However, depending on the observation period, the forecasting ability differs tremendously. For the entire period, the yield curve was not able to predict local bear markets reliably, nor was it possible to use the information contained in the yield curve to outperform the stock market.

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Metadaten
Author:Norman John
Referee:Ursula Walther
Advisor:Axel Hellmann
Document Type:Master's Thesis
Language:English
Date of first Publication:2019/12/16
Publishing Institution:Hochschulbibliothek HWR Berlin
Granting Institution:Hochschule für Wirtschaft und Recht Berlin
Date of final exam:2019/07/22
Release Date:2019/12/16
Tag:bear market; forecasting; interest rate; probit; yield curve
Page Number:57
Institutes:FB I - Wirtschaftswissenschaften / International Finance M.Sc.
Licence (German):License LogoUrheberrechtsschutz