Bond–Equity Yield Ratio Market Timing in Emerging Markets

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