Perez-Quiros, Gabriel and Timmermann, Allan (2001) Business cycle asymmetries in stock returns: evidence from higher order moments and conditional densities. Journal of Econometrics, 103 (1-2). 259 - 306. ISSN 0304-4076
Full text not available from this repository.Abstract
Markov switching models with time-varying means, variances and mixing weights are applied to characterize business cycle variation in the probability distribution and higher order moments of stock returns. This allows us to provide a comprehensive characterization of risk that goes well beyond the mean and variance of returns. Several mixture models with different specifications of the state transition are compared and we propose a new mixture of Gaussian and student-t distributions that captures outliers in returns. The models produce very similar expected returns and volatilities but imply very different time series for conditional skewness, kurtosis and predictive density. Consistent with economic theory, the gains in predictive accuracy from considering two-state mixture models rather than a single-state specification are higher for small firms than for large firms.
| Item Type: | Article |
|---|---|
| Official URL: | https://www.sciencedirect.com/journal/journal-of-e... |
| Additional Information: | © 2001 Elsevier Science |
| Divisions: | LSE |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation and Selection |
| Date Deposited: | 18 Nov 2008 14:19 |
| Last Modified: | 03 Jan 2024 08:57 |
| URI: | http://eprints.lse.ac.uk/id/eprint/18485 |
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