The conditional influence of term spread and pattern changes on future equity returns

David A. Volkman, Olivier J. P. Maisondieu Laforge and Mark Wohar ()

Applied Economics, 2014, vol. 46, issue 9, 913-923

Abstract: We extend previous research examining the relation between interest rates and equity returns using a multivariate analysis of covariance model with a dynamic yield curve and conditioned term spread. We find yield pattern changes predict economic equity returns; that the long end-of-yield curve is a strong determinant factor; and, in contrast to previous research, we find no relation between a decrease in the short rate and equity returns. However, the conditional term spread captures a significant positive return indicating that the degree of decline in the short rate relative to the long rate is of more importance than the term spread alone.

Date: 2014
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DOI: 10.1080/00036846.2013.859377

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