Yield Curve and Stock Return

1. Yield Curve and Stock Return Midas Asset Management Joohyun Baek Elizabeth Park Takeshi Takebayashi Indae Yoon 2002.2.27

2. Agenda • Objective • Yield Curve Analysis • Trading Strategy

3. Objective • Examine the interaction between yield curve and stock return

4. Yield Curve Analysis • Yield Spread and Stock Return • 10 year T-note – 3 month T-bill • 5 year T note – 3 month T bill • 5 year T note – 2 year T note • 2 year T note – 3 month T bill • 1 year T note – 3 month T bill • Yield Spread + P/E Ratio and Stock Return • Logistic Regression

5. Yield Spread (10yr – 3mo)and Stock Return • Positive and Negative • Slope Magnitude • Level • Slope Behavior • Interest Rate Behavior

11. Yield Curve + P/E Ratioand Stock Return • Average stock returns consistently highest in category MM.

12. Yield Curve + P/E Ratioand Stock Return

13. Logistic Regression

14. Trading Strategy