 Interactive effect of changes in the shape of the yield curve and conditional term spread on expected equity returnsDavid A. Volkman, Olivier J.P. Maisondieu Laforge and Mark Wohar Applied Financial Economics, 2012, vol. 22, issue 18, 1491-1500 Abstract: Recent research has noted that the change in the shape of the yield curve can serve as a proxy for economic activity and contains economic information not present in other explanatory variables. This article extends previous research by examining the combined effect of changes in the shape of the yield curve (yield pattern) and term spread on ex ante equity returns. We find specific yield patterns do affect future equity returns, that changes in the expected long rate is a significant factor, and that, when conditioned on the change in yield curve, the term spread is time variant and significant in specific yield pattern environments and insignificant in others. Specifically, we find that average ex ante equity returns are significant and positive when the yield pattern shows signs of the expected long rate declining. In addition, we find the efficacy of the conditional term spread to predict future equity returns increased after 1980. Our results are consistent with the Expectation Theory of interest rates and robust across capitalization and industry classification. Date: 2012 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:22:y:2012:i:18:p:1491-1500 Ordering information: This journal article can be ordered from DOI: 10.1080/09603107.2012.663471 Access Statistics for this article Applied Financial Economics is currently edited by Anita Phillips More articles in Applied Financial Economics from Taylor & Francis Journals |
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