Cross-sectional tail risk and equity premium prediction
Common predictors of U.S. equity market risk premium fail out-of-sample. We provide a new cross-sectional measure of stock market tail risk. This performs better than the historical risk premium and other commonly used predictors for short- and long-term horizons. The predictive power of cross-secti...
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| Formato: | masterThesis |
| Idioma: | eng |
| Publicado em: |
2015
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| Texto completo: | http://hdl.handle.net/10400.14/16835 |
| País: | Portugal |
| Oai: | oai:repositorio.ucp.pt:10400.14/16835 |
| Resumo: | Common predictors of U.S. equity market risk premium fail out-of-sample. We provide a new cross-sectional measure of stock market tail risk. This performs better than the historical risk premium and other commonly used predictors for short- and long-term horizons. The predictive power of cross-sectional tail risk is especially remarkable for one-month horizon forecast and during contractions. We show that under a mean-variance setting, there is an economic increase in the expected return by more than 100% in the short-term and more than 50% for longer horizons. |
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