Sample Essay

The predictability is done based on seven variables including dividend yield, price earnings and book ratios, coincident index, leading index, short rate and the term spread. It should be taken into note that two series of market returns are employed which helps the scope of this study.

Secondly, arbitrary choice of the probability based threshold embedded in the switching strategy is avoided which is good as it shield the study from data snooping criticism. An examination of the buy and hold strategy and the portfolio switching strategy analyzed in the research shows that the switching strategy produces an excess return of 0.6229 per cent per month, nearly 9 basis points higher than the market portfolio. Annualized, this advantage goes even higher in terms of basis points. The probit predictive model hence supports the switching strategy but in this regard, the t-test and median rank sum tests should not be ignored as they help avoid distortion.

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