Common Cycles in Volatility and Cross Section of Stock Returns

Jozef Baruník and Lucie Kraicova
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Lucie Kraicova: Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic

No 2017/19, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: We study the relationship between conditional quantiles of returns and the long-, medium- and short-term volatility in a portfolio of financial assets. We argue that the combination of quantile panel regression and wavelet decomposition of the volatility time series provides us with new insights into the pricing of risk and increases the accuracy of our estimates of re-turn quantiles. Our results contribute to the literature on the risk-return relationship with an emphasis on portfolio management under various investment horizons. Moreover, the analytical framework that we introduce should be applicable to a wide range of problems outside of our research area.

Keywords: Return predictability; Quantiles; Wavelets; Panel data (search for similar items in EconPapers)
JEL-codes: C14 C21 C58 G17 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017-08, Revised 2017-08
New Economics Papers: this item is included in nep-rmg
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