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JOURNAL OF ACCOUNTING AND FINANCE
Predictability of Yield Curve Inversion and Moving Average Crossover
Author(s): Matt Lutey, David Rayome
Citation: Matt Lutey, David Rayome, (2020) "Predictability of Yield Curve Inversion and Moving Average Crossover," Journal of Accounting and Finance, Vol. 20, ss. 4, pp. 23-34
Article Type: Research paper
Publisher: North American Business Press
Abstract:
We take the yield curve inversion and add it to a moving average crossover strategy. This combines past prices and technical timing with macro fundamentals to see whether we can forecast historic recession periods from 1967-2019. The main technical signal is the 21 day Moving Average (MA 21) below the 200 day moving average (MA 200) following yield curve inversion periods. The inversion periods are 1 month 60 month (1,60) 12 month 60 month (12,60) 24 month 60 month (24,60) and 1month 120 month (1,120) 12 month 120 month (12,120) and 24 month 120 month (24,120). Data is obtained from the Center for Research in Security Prices (CRSP). We find that applying the moving average timing (MA TIMING) strategy following yield curve (YC) inversion has promising results for exiting the market before recession periods. We miss several of the last major recessions including the 2008-2009 recession, thus generating positive excess returns. We validate our results using CAPM, Fama and French 3 and 5 Factors, and Kolmgorov Simonoff tests.
