Changing Risk-Return Profiles

Richard Crump, Miro Everaert, Domenico Giannone and Sean Hundtofte

No 850, Staff Reports from Federal Reserve Bank of New York

Abstract: We show that realized volatility in market returns and financial sector stock returns have strong predictive content for the future distribution of market returns. This is a robust feature of the last century of U.S. data and, most importantly, can be exploited in real time. Current realized volatility has the most information content on the uncertainty of future returns, whereas it has only limited content about the location of the future return distribution. When volatility is low, the predicted distribution of returns is less dispersed and probabilistic forecasts are sharper.

Keywords: stock returns; realized volatility; density forecasts; optimal pools (search for similar items in EconPapers)
JEL-codes: C22 G17 G18 (search for similar items in EconPapers)
Pages: 64
Date: 2018-06-01
New Economics Papers: this item is included in nep-fmk, nep-knm and nep-rmg
Note: Revised August 2023.
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Citations: View citations in EconPapers (4)

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Working Paper: Changing Risk-Return Profiles (2018)
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