Using a simple non-linear two-states model [Van Strum (1927), Kairys (1993)] based upon the direction of change of the Spanish nominal interest rate, we construct several active strategies of dynamic investment on the Madrid Stock Exchange Index which produce returns higher than those of the passive buy and hold market portfolio strategy. It is confirmed that, when processing the information contained in the interest rate in order to forecast stock returns, more highly developed regression and qualitative response models do not improve on the performance of the model proposed here. Finally, we examine the consequences for the Market Efficiency hypothesis of any investor being able to obtain returns higher than those of the market on the basis of publicly available information.

Keywords: dynamic investment strategies, two-states models, market efficiency hypothesis.
JEL Classification: G11.