Krieger, Kevin and Fodor, Andy and Mauck, Nathan and Stevenson, Greg (2012): Predicting Extreme Returns and Portfolio Management Implications.
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We consider which readily observable characteristics of individual stocks (e.g., option implied volatility, accounting data, analyst data) may be used to forecast subsequent extreme price movements. We are the first to explicitly consider the predictive influence of option implied volatility in such a framework, which we unsurprisingly find to be an important indicator of future extreme price movements. However, after controlling for implied volatility levels, other factors, particularly firm age and size, still have additional predictive power of extreme future returns. Furthermore, excluding predicted extreme return stocks leads to a portfolio that has lower risk (standard deviation of returns) without sacrificing performance.
|Item Type:||MPRA Paper|
|Original Title:||Predicting Extreme Returns and Portfolio Management Implications|
|Keywords:||Implied volatility, portfolio management|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
G - Financial Economics > G0 - General > G00 - General
|Depositing User:||Nathan Mauck|
|Date Deposited:||05 Jul 2012 11:21|
|Last Modified:||22 Aug 2016 17:27|
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