The Determinants of Equity Risk and Their Forecasting Implications: A Quantile Regression Perspective

Giovanni Bonaccolto and Massimiliano Caporin
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Giovanni Bonaccolto: Department of Economics and Management “Marco Fanno”, University of Padova, Via del Santo 22, 35123 Padova, Italy

JRFM, 2016, vol. 9, issue 3, 1-25

Abstract: Several market and macro-level variables influence the evolution of equity risk in addition to the well-known volatility persistence. However, the impact of those covariates might change depending on the risk level, being different between low and high volatility states. By combining equity risk estimates, obtained from the Realized Range Volatility, corrected for microstructure noise and jumps, and quantile regression methods, we evaluate the forecasting implications of the equity risk determinants in different volatility states and, without distributional assumptions on the realized range innovations, we recover both the points and the conditional distribution forecasts. In addition, we analyse how the the relationships among the involved variables evolve over time, through a rolling window procedure. The results show evidence of the selected variables’ relevant impacts and, particularly during periods of market stress, highlight heterogeneous effects across quantiles.

Keywords: realized range volatility; quantile regression; volatility quantiles and density forecasting; forecast assessment (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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