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Market Timing under Limited Information: An Empirical Investigation in US Treasury Market

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  • Guoshi Tong

    (Hanqing Advanced Institute of Economics and Finance Renmin University of China)

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.

Suggested Citation

  • Guoshi Tong, 2017. "Market Timing under Limited Information: An Empirical Investigation in US Treasury Market," Annals of Economics and Finance, Society for AEF, vol. 18(2), pages 291-322, November.
    • Handle: RePEc:cuf:journl:y:2017:v:18:i:2:tong
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    References listed on IDEAS

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    More about this item

    Keywords

    Bond return predictability; Limited information; Structural forecast evaluation;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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