Quantile Risk–Return Trade-Off

Nektarios Aslanidis; Charlotte Christiansen; Christos S. Savva

doi:10.3390/jrfm14060249

Quantile Risk–Return Trade-Off

Nektarios Aslanidis, Charlotte Christiansen^*, Christos S. Savva

^*Corresponding author for this work

Department of Economics and Business Economics - CREATES

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

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Abstract

We investigate the risk–return trade-off on the US and European stock markets. We investigate the non-linear risk–return trade-off with a special eye to the tails of the stock returns using quantile regressions. We first consider the US stock market portfolio. We find that the risk–return trade-off is significantly positive at the upper tail (0.9 quantile), where the upper tail is large positive excess returns. The positive trade-off is as expected from asset pricing models. For the lower tail (0.1 quantile), that is for large negative stock returns, the trade-off is significantly negative. Additionally, for the median (0.5 quantile), the risk–return trade-off is insignificant. These results are recovered for the US industry portfolios and for Eurozone stock market portfolios.

Original language	English
Article number	249
Journal	Journal of Risk and Financial Management
Volume	14
Issue	6
Number of pages	14
DOIs	https://doi.org/10.3390/jrfm14060249
Publication status	Published - Jun 2021

Keywords

VIX
quantile regressions
risk–return trade-off
stock markets

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abstract = "We investigate the risk–return trade-off on the US and European stock markets. We investigate the non-linear risk–return trade-off with a special eye to the tails of the stock returns using quantile regressions. We first consider the US stock market portfolio. We find that the risk–return trade-off is significantly positive at the upper tail (0.9 quantile), where the upper tail is large positive excess returns. The positive trade-off is as expected from asset pricing models. For the lower tail (0.1 quantile), that is for large negative stock returns, the trade-off is significantly negative. Additionally, for the median (0.5 quantile), the risk–return trade-off is insignificant. These results are recovered for the US industry portfolios and for Eurozone stock market portfolios.",

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AB - We investigate the risk–return trade-off on the US and European stock markets. We investigate the non-linear risk–return trade-off with a special eye to the tails of the stock returns using quantile regressions. We first consider the US stock market portfolio. We find that the risk–return trade-off is significantly positive at the upper tail (0.9 quantile), where the upper tail is large positive excess returns. The positive trade-off is as expected from asset pricing models. For the lower tail (0.1 quantile), that is for large negative stock returns, the trade-off is significantly negative. Additionally, for the median (0.5 quantile), the risk–return trade-off is insignificant. These results are recovered for the US industry portfolios and for Eurozone stock market portfolios.

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Quantile Risk–Return Trade-Off

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