Is the Distribution of Stock Returns Predictable?

50 Pages Posted: 25 Mar 2008

See all articles by Tolga Cenesizoglu

Tolga Cenesizoglu

HEC Montreal - Department of Finance

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Date Written: February 12, 2008


A large literature has considered predictability of the mean or volatility of stock returns but little is known about whether the distribution of stock returns more generally is predictable. We explore this issue in a quantile regression framework and consider whether a range of economic state variables are helpful in predicting different quantiles of stock returns representing left tails, right tails or shoulders of the return distribution. Many variables are found to have an asymmetric effect on the return distribution, affecting lower, central and upper quantiles very differently. Out-of-sample forecasts suggest that upper quantiles of the return distribution can be predicted by means of economic state variables although the center of the return distribution is more difficult to predict. Economic gains from utilizing information in time-varying quantile forecasts are demonstrated through portfolio selection and option trading experiments.

Suggested Citation

Cenesizoglu, Tolga and Timmermann, Allan, Is the Distribution of Stock Returns Predictable? (February 12, 2008). Available at SSRN: or

Tolga Cenesizoglu (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7


Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)


Centre for Economic Policy Research (CEPR)

United Kingdom

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