Market Timing under Limited Information: An Empirical Investigation in US Treasury Market
Guoshi Tong (gstong@ruc.edu.cn)
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Guoshi Tong: Hanqing Advanced Institute of Economics and Finance Renmin University of China
Annals of Economics and Finance, 2017, vol. 18, issue 2, 291-322
Abstract:
I examine the welfare value of bond return forecasts in timing the market under a limited data trading environment. Using monthly US data, I estimate the utility benefit of each return forecast and test its significance through a structural approach of forecast evaluation. I find that predictor based market timing with finite historical data creates occasional but large portfolio loss. The benchmark welfare level under no-predictability view is hard to beat by parametric or non-parametric strategy. However, a Bayesian shrinkage strategy with no-predictability prior leads to significant welfare gain at certain range of prior confidence.
Keywords: Bond return predictability; Limited information; Structural forecast evaluation (search for similar items in EconPapers)
JEL-codes: C12 E47 G11 G17 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2017:v:18:i:2:tong
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