Changing Risk-Return Profiles

Richard Crump, Domenico Giannone and C. Hundtofte

No 20181004, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Are stock returns predictable? This question is a perennially popular subject of debate. In this post, we highlight some results from our recent working paper, where we investigate the matter. Rather than focusing on a single object like the forecasted mean or median, we look at the entire distribution of stock returns and find that the realized volatility of stock returns, especially financial sector stock returns, has strong predictive content for the future distribution of stock returns. This is a robust feature of the data since all of our results are obtained with real-time analyses using stock return data since the 1920s. Motivated by this result, we then evaluate whether the banking system appears healthier today, and if recent regulatory reforms have helped.

Keywords: density forecasts; Dodd-Frank; Stock returns; financial conditions (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2018-10-04
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Citations: View citations in EconPapers (2)

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Working Paper: Changing Risk-Return Profiles (2018)
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