The term structure of interest rates as predictor of stock returnsevidence for the IBEX 35 during a bear market

  1. Fernández Pérez, Adrián
  2. Fernández Rodríguez, Fernando
  3. Sosvilla Rivero, Simón
Revista:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Año de publicación: 2013

Número: 19

Páginas: 1-29

Tipo: Documento de Trabajo

DIALNET GOOGLE SCHOLAR lock_openDocta Complutense editor

Otras publicaciones en: Documentos de Trabajo (ICAE)

Resumen

We present a model to forecast the probability of bear markets in the Spanish IBEX 35 with a congruent and concise parameterization which selects the explanatory factors from a wide set of variables like the yield curve of Spain, US and Europe, as well as several macro variables, and numerous leading indicators. To this end, we first use a data-guided algorithm to select an in-sample optimal Probit model that is employed as a benchmark. We then form alternative Probit models obtained from combinations of levels, slopes and/or curvatures in the yield curve of Spain, US and Europe, as well as several macro variables and compare their estimated probability of bear markets in the out-of-sample period with that from the benchmark model. Our results suggest that the slopes of US and Europe yield curves have some 2 information content (not implicitly present in the slope of the Spanish yield curve) that helps to better forecast the probability of bear markets in the IBEX 35.

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