Exploiting price misalignements

    Research output: Working paper

    Abstract

    This paper defines and tests a simple passive trading strategy which involves comparing the price of an asset with its fundamental value. The fundamental value is computed from the real-time forecasts of dividends, expected returns and dividend growth rate using simple regression schemes. By defining a measure of going long in either the equity or the bond market, the rule is found to significantly outperform the passive Buy and Hold strategy with stronger effect in longer horizons. The returns from the strategy also tend to vary with the forecasting model and the definition of the discount rate in the present value relation.
    Original languageEnglish
    PublisherUniversity Library of Munich, Germany
    Number of pages29
    Publication statusPublished - 2009

    Publication series

    NameMPRA Paper
    No.27147

    Keywords

    • Net Present Value
    • Dividend forecasts
    • Real-time
    • Trading Rule
    • Excess volatility

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  • Cite this

    Rambaccussing, D. (2009). Exploiting price misalignements. (MPRA Paper; No. 27147). University Library of Munich, Germany. http://ideas.repec.org/p/pra/mprapa/27147.html