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Inverted Yield Curves and Expected Stock Returns

Tue, 30 Jul 2019 19:00:30 GMT

By Eugene F. Fama and Kenneth R. French We test the hypothesis that inverted yield curves predict negative equity premiums. Using monthly observations for the U.S. and 11 other developed markets, we examine whether shifting from equities to Treasury bills following a recent term structure inversion increases expected returns relative to a passive strategy of simply holding the value weight market. We find no evidence that inverted yield curves predict stocks will underperform bills.