Staff Reports
Changing Risk-Return Profiles
Number 850
June 2018 August 2023

JEL classification: C22, G17, G18

Authors: Richard K. Crump, Miro Everaert, Domenico Giannone, and Sean Hundtofte

We show that realized volatility in market returns and financial sector stock returns have strong predictive content for the future distribution of market returns. This is a robust feature of the last century of U.S. data and, most importantly, can be exploited in real time. Current realized volatility has the most information content on the uncertainty of future returns, whereas it has only limited content about the location of the future return distribution. When volatility is low, the predicted distribution of returns is less dispersed and probabilistic forecasts are sharper.

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Author Disclosure Statement(s)
Richard K. Crump
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Changing Risk-Return Profiles,” joint with Domenico Giannone and Sean Hundtofte.

Domenico Giannone
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Changing Risk-Return Profiles,” joint with Richard Crump and Sean Hundtofte.

Sean Hundtofte
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Changing Risk-Return Profiles,” joint with Richard Crump and Domenico Giannone.
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