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Using yield curve to predict bear market-take 2008 post-financial crisis period as example
Term Structure of Interest Rates
Yield curve flatten
Forecast of recession
|Issue Date: ||2019-07-01 10:45:09 (UTC+8)|
The main object of this paper is to predict the stock market recession by using the government yield spread. Based on the theory of Term Structure of Interest Rates, the long-term rate will be affected by economic growth, and the short-term rate is sensitive to the central bank’s monetary policy. Therefore, previous studies have shown that tightening yield spread can be indicated as a sign of economic recession.
However, the predictive power of the yield spread is not always effective and may vary from country to country. Furthermore, monetary policy also result in different forecasting capabilities of the same country at different periods. This paper will take 2008 post-financial crisis period for example, as the market structure changing caused by Quantitative Easing policy. I will explore the forecasting ability of the three major mature markets in the US, the Eurozone (Germany) and Japan to predict the stock market recession. Our evidences show that Germany yield spread had the capability to forecast their stock market recession, but after the ECB implemented the QE policy, the predictive power was declined. Then, this paper try to define a “Inversion Ratio” which contain the information of the whole yield curve. However, I do not find additional information in the predictive power. Last, I also examine the effect of the fiscal and monetary policy. I find that monetary and fiscal policies have an explanatory power for stock market recession when yield spread fail to predict.
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|Source URI: ||http://thesis.lib.nccu.edu.tw/record/#G0106357023|
|Data Type: ||thesis|
|Appears in Collections:||[財務管理學系] 學位論文|
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