IDEAS home Printed from https://ideas.repec.org/a/bpj/sndecm/v16y2012i5p1-37n2.html
   My bibliography  Save this article

Threshold Asymmetries in Equity Return Distributions: Statistical Tests and Investment Implications

Author

Listed:
  • Yoldas Emre

    () (Federal Reserve Board)

Abstract

In this paper we investigate asymmetries in time-varying means, volatilities, correlations, and betas of equity returns in a multivariate threshold framework. We consider alternative specifications in which the threshold variable is based on well established equity pricing factors and predictors. We find strong threshold effects with respect to market excess return, value premium, and term spread. Our results indicate that the threshold model based on the market excess return provides a flexible and computationally inexpensive specification for modeling asymmetries. We test significance of specific forms of asymmetries using subsampling methods. We compare performance of the proposed threshold model with a variety of alternatives in an out-of-sample setup and find that the threshold model performs remarkably well, especially for investors with relatively high risk aversion.

Suggested Citation

  • Yoldas Emre, 2012. "Threshold Asymmetries in Equity Return Distributions: Statistical Tests and Investment Implications," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(5), pages 1-37, December.
    • Handle: RePEc:bpj:sndecm:v:16:y:2012:i:5:p:1-37:n:2
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/snde.2012.16.issue-5/1558-3708.1799/1558-3708.1799.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jun Tu, 2010. "Is Regime Switching in Stock Returns Important in Portfolio Decisions?," Management Science, INFORMS, vol. 56(7), pages 1198-1215, July.
    2. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
    3. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
    4. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
    5. Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, vol. 63(3), pages 443-494, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:sndecm:v:16:y:2012:i:5:p:1-37:n:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.