OPEN-SOURCE SCRIPT
SP500 Earnings Yield Spread: SP500 vs 3 Month & 10 Year Treasury
Add the SP500 ttm Earnings Yield Spreads vs the 3 Month and 10 Year Treasury Rates.
Short Spread = SP500 E/P ttm - 3 Month Treasury Rate
Long Spread = SP500 E/P ttm - 10 Year Treasury Rate
Symbol "SP500_EARNINGS_YIELD_MONTH" as the SP500 Earnings Yield
Symbol "US03MY" as the 3 Month Treasury Rate
Symbol "US10Y" as the 10 Year Treasury Rate
Based on research suggesting Earnings Yield and Interest Rates may have predictive power of future returns:
- Market-Timing Strategies That Worked? - Pu Shen [2002]
- Valuation Ratios and the Long-Run Stock Market Outlook - Campbell and Shiller [1998]
Inputs:
Short Term Spread - Line for Short Term Spread
Long Term Spread - Line for Long Term Spread
Zero Line - Horizontal line at 0
Color Lines Based on Spread - Color the spreads green/red if spread is positive/negative
Short 10th PCT - Line for Short Term Spread 10th percentile of historical values
Long 10th PCT - Line for Long Term Spread 10th percentile of historical values
Shade Below 10 PCT: Spread Must be Negative - Requirement the spread is negative to shade background
Shade Background Below Short 10th Percentile - Shade the background if the Short Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Shade Background Below Long 10th Percentile - Shade the background if the Long Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Short Spread = SP500 E/P ttm - 3 Month Treasury Rate
Long Spread = SP500 E/P ttm - 10 Year Treasury Rate
Symbol "SP500_EARNINGS_YIELD_MONTH" as the SP500 Earnings Yield
Symbol "US03MY" as the 3 Month Treasury Rate
Symbol "US10Y" as the 10 Year Treasury Rate
Based on research suggesting Earnings Yield and Interest Rates may have predictive power of future returns:
- Market-Timing Strategies That Worked? - Pu Shen [2002]
- Valuation Ratios and the Long-Run Stock Market Outlook - Campbell and Shiller [1998]
Inputs:
Short Term Spread - Line for Short Term Spread
Long Term Spread - Line for Long Term Spread
Zero Line - Horizontal line at 0
Color Lines Based on Spread - Color the spreads green/red if spread is positive/negative
Short 10th PCT - Line for Short Term Spread 10th percentile of historical values
Long 10th PCT - Line for Long Term Spread 10th percentile of historical values
Shade Below 10 PCT: Spread Must be Negative - Requirement the spread is negative to shade background
Shade Background Below Short 10th Percentile - Shade the background if the Short Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Shade Background Below Long 10th Percentile - Shade the background if the Long Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
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