Monetary Policy, Volatility Risk, and Return Predictability

2016 ◽  
Author(s):  
Alex C. Hsu ◽  
Francisco Palomino ◽  
Charles Qian
Keyword(s):  
Monetary Policy ◽  
Return Predictability ◽  
Risk And Return ◽  
Volatility Risk

scholarly journals Volatility risk and stock return predictability on global financial crises

2017 ◽  
Vol 7 (1) ◽  
pp. 33-66 ◽  
Author(s):  
Worawuth Kongsilp ◽  
Cesario Mateus
Keyword(s):  
Stock Returns ◽  
Financial Crises ◽  
Stock Return ◽  
Return Predictability ◽  
Idiosyncratic Volatility ◽  
Stock Return Predictability ◽  
Volatility Risk ◽  
Content Type ◽  
Bull Markets ◽  
Recent Financial Crisis

Purpose The purpose of this paper is to investigate the role of volatility risk on stock return predictability specified on two global financial crises: the dot-com bubble and recent financial crisis. Design/methodology/approach Using a broad sample of stock options traded on the American Stock Exchange and the Chicago Board Options Exchange from January 2001 to December 2010, the effect of different idiosyncratic volatility forecasting measures are examined on future stock returns in four different periods (Bear and Bull markets). Findings First, the authors find clear and robust empirical evidence that the implied idiosyncratic volatility is the best stock return predictor for every sub-period both in Bear and Bull markets. Second, the cross-section firm-specific characteristics are important when it comes to stock returns forecasts, as the latter have mixed positive and negative effects on Bear and Bull markets. Third, the authors provide evidence that short selling constraints impact negatively on stock returns for only a Bull market and that liquidity is meaningless for both Bear and Bull markets after the recent financial crisis. Practical implications These results would be helpful to disclose more information on the best idiosyncratic volatility measure to be implemented in global financial crises. Originality/value This study empirically analyses the effect of different idiosyncratic volatility measures for a period that involves both the dotcom bubble and the recent financial crisis in four different periods (Bear and Bull markets) and contributes the existing literature on volatility measures, volatility risk and stock return predictability in global financial crises.

scholarly journals Risk and return: Long-run relations, fractional cointegration, and return predictability

2013 ◽  
Vol 108 (2) ◽  
pp. 409-424 ◽  
Author(s):  
Tim Bollerslev ◽  
Daniela Osterrieder ◽  
Natalia Sizova ◽  
George Tauchen
Keyword(s):  
Return Predictability ◽  
Fractional Cointegration ◽  
Risk And Return ◽  
Long Run

scholarly journals Stock market implications of Fed's balance sheet size

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Asif M. Ruman
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Central Bank ◽  
Market Performance ◽  
Balance Sheet ◽  
Return Predictability ◽  
Unconventional Monetary Policy ◽  
Content Type ◽  
Market Return ◽  
Stock Market Performance

PurposeConsidering the relationship between the central bank balance sheet and unconventional monetary policy after the 2008 financial crisis, it is crucial to see how the unconventional monetary policy, given near-zero interest rates, affects future stock market performance. This paper analyzes the impact of the Fed's balance sheet size on stock market performance.Design/methodology/approachTo analyze the Fed's balance sheet size's long-term stock market implications, this paper uses the asset pricing framework of market return predictability such as Ordinary least squares (OLS) and Generalized method of moments (GMM) analysis.FindingsFindings in this paper suggest that the Fed's balance sheet size, deflated by asset market wealth, presents evidence of return predictability during 1926–2015 that is robust against standard controls. These results can be explained through the redistribution of risk and the wealth channels of monetary policy transmission. The changing balance sheet size of a central bank (1) affects systemic risk, yields and expectations and (2) signals the future direction of monetary policy and thus economic outlook.Research limitations/implicationsThe main implication of these findings is that policymakers should avoid a severe imbalance between a central bank's balance sheet size and assets market wealth.Originality/valueThe empirical evidence in this paper documents a century-old relation between the Fed's balance sheet size and US stock market return using the Fed's balance sheet data for the last 100 years and stock market returns from the Center for research in security prices (CRSP) database.

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