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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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    Cited by:

    1. is not listed on IDEAS
    2. Lenza, Michele & Moutachaker, Inès & Paredes, Joan, 2025. "Density forecasts of inflation: A quantile regression forest approach," European Economic Review, Elsevier, vol. 178(C).
    3. Filippo Busetto, 2024. "Asymmetric expectations of monetary policy," Bank of England working papers 1058, Bank of England.
    4. Nina Boyarchenko & Domenico Giannone & Or Shachar, 2018. "Flighty liquidity," Staff Reports 870, Federal Reserve Bank of New York.
    5. Martina Hengge, 2019. "Uncertainty as a Predictor of Economic Activity," IHEID Working Papers 19-2019, Economics Section, The Graduate Institute of International Studies.
    6. Richard K. Crump & João A. C. Santos, 2018. "Review of New York Fed studies on the effects of post-crisis banking reforms," Economic Policy Review, Federal Reserve Bank of New York, issue 24-2, pages 71-90.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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