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MARKET TIMING OF INTERNATIONAL STOCK MARKETS USING THE YIELD SPREAD
Author(s) -
Liu Wei Wendy,
Resnick Bruce G.,
Shoesmith Gary L.
Publication year - 2004
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2004.00099.x
Subject(s) - stock market , liberian dollar , stock (firearms) , market timing , yield (engineering) , economics , probit model , financial economics , monetary economics , us dollar , business , currency , econometrics , finance , geography , portfolio , context (archaeology) , materials science , archaeology , metallurgy
We use probit modeling to forecast bear stock markets in the United States and in eight major foreign stock markets. In general, we find that the U.S. yield spread contains more important market‐timing information than does the home‐country yield spread for profitable market timing. At a 35% probability screen, our simulations show that the U.S. dollar (representative local currency) investor could earn a median compound annual return across eight foreign (non‐U.S.) stock markets of 15.75% (17.67%) by following a market‐timing strategy versus a median buy‐and‐hold return of 13.56% (16.55%).