Bond–Equity Yield Ratio Market Timing in Emerging Markets

Posted: 20 Aug 2016

See all articles by Nebojsa Dimic

Nebojsa Dimic

University of Vaasa, Department of Accounting and Finance

Vitaly Orlov

University of St. Gallen - School of Finance

Janne Jaakko Äijö

University of Vaasa, Department of Accounting and Finance

Date Written: August 19, 2016

Abstract

This paper investigates the market timing ability of the bond–equity yield ratio (BEYR) from an international investor perspective. Consolidating data on emerging markets, we document no major international evidence that BEYR-based investing strategies, namely extreme values, thresholds, and moving averages, provide higher risk-adjusted returns than benchmark buy-and-hold portfolios. However, we develop new augmented BEYR indicators by introducing the notion of U.S. bonds as a safe investment relative to emerging market stocks and bonds. Dynamic strategies based on our augmented BEYR indicators produce significant gains in risk-adjusted returns compared to traditional BEYR and buy-and-hold benchmark strategies.

Keywords: BEYR, emerging markets, market timing

JEL Classification: E44, F30, G15

Suggested Citation

Dimic, Nebojsa and Orlov, Vitaly and Äijö, Janne Jaakko, Bond–Equity Yield Ratio Market Timing in Emerging Markets (August 19, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2826465 or http://dx.doi.org/10.2139/ssrn.2826465

Nebojsa Dimic (Contact Author)

University of Vaasa, Department of Accounting and Finance ( email )

Finland

Vitaly Orlov

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Janne Jaakko Äijö

University of Vaasa, Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa
Finland

HOME PAGE: http://www.uwasa.fi/~jja

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