Predictable return distributions

Publikation: Working paperForskning

Dokumenter

  • Rp10 38

    Forlagets udgivne version, 401 KB, PDF-dokument

  • Institut for Økonomi
This paper provides detailed insights into predictability of the entire stock and bond return distribution through the use of quantile regression. This allows us to examine speci…c parts of the return distribution such as the tails or the center, and for a suf…ciently …ne grid of quantiles we can trace out the entire distribution. A univariate quantile regression model is used to examine stock and bond return distributions individually, while a multivariate model is used to capture their joint distribution. An empirical analysis on US data shows that certain parts of the return distributions are predictable as a function of economic state variables. The results are, however, very different for stocks and bonds. The state variables primarily predict only location shifts in the stock return distribution, while they also predict changes in higher-order moments in the bond return distribution. Out-of-sample analyses show that the relative accuracy of the state variables in predicting future returns varies across the distribution. A portfolio study shows that an investor with power utility can obtain economic gains by applying the empirical return distribution in
portfolio decisions instead of imposing an assumption of lognormally distributed
returns.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider47
StatusUdgivet - 2010

Se relationer på Aarhus Universitet Citationsformater

Download-statistik

Ingen data tilgængelig

ID: 21591973