Market Timing of International Stock Markets Using the Yield Spread
Posted: 23 Jan 2004
We extend probit modeling to forecast a bear stock market in the United States and 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%) from following a market-timing strategy versus a median buy-and-hold return of 13.56% (16.55%).
JEL Classification: G14, G15
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