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Stock return distribution and predictability: Evidence from over a century of daily data on the DJIA index

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journal contribution
posted on 28.03.2019, 11:20 authored by Bartosz Gebka, Mark Wohar
This paper analyses the predictive power of the DJIA index returns, measured at different quantiles of its distribution, for future return distribution. The returns measured at quantile 0.75 have predictive power for most quantiles of future returns, except for their median. This result prevails after controlling for the predictive power of the lagged first four moments of returns and of other economic predictors used in the literature. Furthermore, this finding is stable over time. Forecasts of future mean returns based on predicted return quantiles have positive economic value, as do forecasts of future volatility, the latter especially for investors with low risk aversion. The predictive power of quantile 0.75 DJIA returns is shown to be the result of their ability to forecast shocks to future investment and consumption.

History

School

  • Business and Economics

Department

  • Business

Published in

International Review of Economics and Finance

Volume

60

Pages

1 - 25

Citation

GEBKA, B. and WOHAR, M.E., 2018. Stock return distribution and predictability: Evidence from over a century of daily data on the DJIA index. International Review of Economics and Finance, 60, pp.1-25.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This paper was accepted for publication in the journal International Review of Economics and Finance and the definitive published version is available at https://doi.org/10.1016/j.iref.2018.12.002

Acceptance date

02/12/2018

Publication date

2018-12-07

Copyright date

2019

ISSN

1059-0560

Language

en