Is the gilt-equity yield ratio useful for predicting UK stock returns?


Clare, A.D., Thomas, S.H. and Wickens, M.R. (1994) Is the gilt-equity yield ratio useful for predicting UK stock returns? Economic Journal, 104, (423), 303-315.

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Description/Abstract

The ratio of a long government bond yield to the equity market dividend yield, the Gilt-Equity Yield Ratio (GEYR), is commonly used by analysts in the UK as a means of determining the cheapness of equity investment relative to investment in gilts. Analysts use the ratio to predict future movements in equity prices using buy/sell thresholds, implicitly assuming that there is a long-run arbitrage relation between the equity market and the government bond market. A formal econometric analysis confirms that the GEYR is indeed a useful predictor of equity returns in the UK.

Item Type: Article
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Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 37385
Date Deposited: 12 Feb 2007
Last Modified: 27 Mar 2014 18:23
URI: http://eprints.soton.ac.uk/id/eprint/37385

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