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Changing Risk-Return Profiles

In: Recent Advances in Econometrics and Statistics

Author

Listed:
  • Richard K. Crump

    (Federal Reserve Bank of New York)

  • Miro Everaert

    (Formerly Federal Reserve Bank of New York; Currently, Freddie Mac)

  • Domenico Giannone

    (University of Washington)

  • C. Sean Hundtofte

    (Solve Finance)

Abstract

We show that realized volatility in market returns and financial sector stock returns has 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.

Suggested Citation

  • Richard K. Crump & Miro Everaert & Domenico Giannone & C. Sean Hundtofte, 2024. "Changing Risk-Return Profiles," Springer Books, in: Matteo Barigozzi & Siegfried Hörmann & Davy Paindaveine (ed.), Recent Advances in Econometrics and Statistics, pages 283-302, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-61853-6_15
    DOI: 10.1007/978-3-031-61853-6_15
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