The experimental approach is applied to explore the value of unidentified historical information in stock-return prediction. Return sequences were randomly drawn cross section and time from historical S&P500 data. Subjects were requested to predict returns or select stocks from 12 preceding realizations. The hypothesis that predictions are randomly assigned to historical sequences is rejected i...

When volatility feedback is taken into account, there is strong evidence of a positive tradeoff between stock market volatility and expected returns on a market portfolio. In this paper, we ask whether this intertemporal tradeoff between risk and return is responsible for the reported evidence of mean reversion in stock prices. There are two relevant findings. First, price movements not related...

this paper examines regime shifts in tedpix return and volatility and the effects of positive and negative crude oil shocks and gold price fluctuations on stock market shifts behavior using markov switching egarch model with student’s t-distribution. we detect two episodes of series behavior, one relative to low mean/high variance regime namely bear state and the other to high mean/low variance...

This paper provides evidence that the positive relation between firm-level stock returns and firm-level return volatility is due to real options that firms possess. Consistent with the theoretical prediction that the value of a real option should be increasing in the volatility of the underlying asset, we find that the positive volatility-return relation is much stronger for firms that are more...

Stock market volatility is the systematic risk faced by investors who hold a market portfolio (e.g., a stock market index fund). Schwert (1989b) has undertaken an extensive study of stock market volatility, using historical data back to the 19th century. Some of his major findings are illustrated in Figure 1, which plots quarterly stock market volatility for the post-World War II period.1 The f...

Using a novel and flexible regression approach that avoids imposing restrictive modeling assumptions, we find evidence of a nonmonotonic relation between conditional volatility and expected stock market returns. At low and medium levels of conditional volatility there is a positive risk-return trade-off, but this relation is inverted at high levels of volatility. This finding helps explain the ...

Alternative strategies for predicting stock market volatility are examined. In out-of-sample forecasting experiments implied-volatility information, derived from contemporaneously observed option prices or history-based volatility predictors, such as GARCH models, are investigated, to determine if they are more appropriate for predicting future return volatility. Employing German DAX-index retu...

This paper constitutes a first analysis on stock returns and stock return volatility of energy corporations from the Eurozone. According to our results, the gas market does not play a role for the pricing of Eurozone energy stocks. However, changes in the Euro to U.S. Dollar exchange rate as well as developments at the money and especially at the oil market strongly affect returns of the energy...