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The information content of forward moments

Andreou, P; Kagkadis, A; Philip, D; Taamouti, A

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A Kagkadis


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.

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
Public URL
Publisher URL


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