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Exploiting price misalignements

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  • Rambaccussing, Dooruj

Abstract

Signi�cant cumulative above the market returns can be made by diversifying wealth between equity and bond assets over time. The main premise of the trading rule model is to identify when should assets be held in the bond and equity markets in real time. The model involves comparing the net present value of the equity index with the actual price. Recursive and Rolling forecasts of dividends from three regression schemes are used to proxy expected dividends. The returns are sensitive to the forecasting model and the discount factor adopted in the net present value relation.

Suggested Citation

  • Rambaccussing, Dooruj, 2009. "Exploiting price misalignements," MPRA Paper 27147, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27147
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    References listed on IDEAS

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    More about this item

    Keywords

    Net Present Value; Dividend forecasts; Real-time; Trading Rule; Excess volatility;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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