This paper investigates the significance of dynamic conditional beta in predicting the cross-sectional variation in expected stock returns. The results indicate that the time-varying conditional beta is alive and well in the cross-section of daily stock returns. Portfolio-level analyses and firm-level cross-sectional regressions indicate a positive and significant relation between dynamic condi...

This paper proposes and estimates a more general parametric stochastic variance model of equity index returns than has been previously considered using data from both underlying and options markets. I conclude that the square root stochastic variance model of Heston (Rev. Financial Stud. 6 (1993) 327) is incapable of generating realistic returns behavior, and that the data are better represente...

This paper provides a simple unified framework for assessing the empirical linkages between returns and realized and implied volatilities. First, we show that whereas the volatility feedback effect as measured by the sign of the correlation between contemporaneous return and realized volatility depends importantly on the underlying structural model parameters, the correlation between return and...

Modelling covariance structures is known to suffer from the curse of dimensionality. In order to avoid this problem for forecasting, the authors propose a new factor multivariate stochastic volatility (fMSV) model for realized covariance measures that accommodates asymmetry and long memory. Using the basic structure of the fMSV model, the authors extend the dynamic correlation MSV model, the co...

Pearson’s correlation coefficient is typically used for measuring the dependence structure of stock returns. Nevertheless, it has many shortcomings often documented in the literature. We suggest to use a conditional version of Spearman’s rho as an alternative dependence measure. Our approach is purely nonparametric and we avoid any kind of model misspecification. We derive hypothesis tests for ...

This research studies the role of multivariate distribution structures on random asset returns in determining the optimal allocation vector for an expected utility maximizer. All our conclusions pertain for the set of risk averters. By carefully disturbing symmetry in the distribution of the, possibly covarying, returns, we ascertain the ordinal structure of the optimized allocation vector. Ran...