Quantile Risk–Return Trade-Off

Nektarios Aslanidis, Charlotte Christiansen and Christos Savva ()
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Nektarios Aslanidis: Department d’Economia, CREIP, Universitat Rovira i Virgili, Avinguda Universitat 1, 43204 Reus, Catalonia, Spain

JRFM, 2021, vol. 14, issue 6, 1-14

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.

Keywords: risk–return trade-off; quantile regressions; VIX; stock markets (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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