摘要：The analysis in this paper is twofold: a) we use the Vector Autoregressive (VAR) methodology to briefly study predictability of bond and stock returns, and b) we investigate the efficiency of stock and bond markets by exploring a buy and sell strategy made up of a hypothetical portfolio which consists of bonds and stocks. Our strategy indicates that unexploited profit opportunities exist in the U.S. security markets. The trading strategy used to identify profitability is based on return predictability. More specifically, we estimate risk-adjusted cumulative twelve-month and quarterly compounded returns on the Dow Jones Industrial Average and the 30-year U.S. Treasury bonds using a state of the art forecasting model. We construct our portfolio which consists of bonds and stocks based on the highest forecast given by the model as follows. Buy stocks when the forecast shows returns are higher in the stock market. Switch your portfolio into bonds every time the forecast model shows higher returns in the bond market.
