Professor Panayiotis Andreou panayiotis.andreou@durham.ac.uk
Professor
Professor Panayiotis Andreou panayiotis.andreou@durham.ac.uk
Professor
A Kagkadis
Professor Dennis Philip dennis.philip@durham.ac.uk
Professor
Professor Abderrahim Taamouti abderrahim.taamouti@durham.ac.uk
Visiting Fellow
We estimate the term structures of risk-neutral forward variance and skewness, and examine their predictive power for equity market excess returns and variance. We use Partial Least Squares to extract a single predictive factor from each term structure that is motivated by the theoretical implications of affine no-arbitrage models. The empirical analysis shows that an increased forward variance factor, FVF (forward skewness factor, FSF) corresponds to a more negatively sloped forward variance (more U-shaped forward skewness) term structure, and significantly forecasts higher future market excess returns and variance. More importantly, FSF exhibits predictive power for market returns that is stronger than, and incremental to, that provided by FVF. However, it does not outperform FVF in terms of excess variance predictability.
Andreou, P., Kagkadis, A., Philip, D., & Taamouti, A. (2019). The information content of forward moments. Journal of Banking and Finance, 106, 527-541. https://doi.org/10.1016/j.jbankfin.2019.07.021
Journal Article Type | Article |
---|---|
Acceptance Date | Jul 29, 2019 |
Online Publication Date | Aug 1, 2019 |
Publication Date | Sep 30, 2019 |
Deposit Date | Jul 30, 2019 |
Publicly Available Date | Feb 1, 2021 |
Journal | Journal of Banking and Finance |
Print ISSN | 0378-4266 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 106 |
Pages | 527-541 |
DOI | https://doi.org/10.1016/j.jbankfin.2019.07.021 |
Public URL | https://durham-repository.worktribe.com/output/1326309 |
Publisher URL | https://www.sciencedirect.com/journal/journal-of-banking-and-finance/issues |
Accepted Journal Article
(591 Kb)
PDF
Publisher Licence URL
http://creativecommons.org/licenses/by-nc-nd/4.0/
Copyright Statement
© 2019 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
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