Quantile Risk-Return Trade-Off

22 Pages Posted: 13 May 2021

See all articles by Nektarios Aslanidis

Nektarios Aslanidis

Universitat Rovira Virgili

Charlotte Christiansen

Aarhus University - CREATES

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping

Date Written: May 12, 2021

Abstract

We investigate the risk-return trade-off on the US and European stock markets. We investigate the non-linear risk-return trade-off with a special eye to the tails of the stock returns using quantile regressions. We first consider the US stock market portfolio. We find that the risk-return trade-off is significantly positive at the upper tail (0.9 quantile), where the upper tail is large positive excess returns. The positive trade-off is as expected from asset pricing models. For the lower tail (0.1 quantile), that is for large negative stock returns, the trade-off is significantly negative. And for the median (0.5 quantile), the risk-return trade-off is insignificant. These results are recovered for the US industry portfolios as well as for Eurozone stock market portfolios.

Keywords: risk-return trade-off; quantile regressions; VIX; stock markets

JEL Classification: C22; G12; G15

Suggested Citation

Aslanidis, Nektarios and Christiansen, Charlotte and Savva, Christos S., Quantile Risk-Return Trade-Off (May 12, 2021). Available at SSRN: https://ssrn.com/abstract=3844597 or http://dx.doi.org/10.2139/ssrn.3844597

Nektarios Aslanidis

Universitat Rovira Virgili ( email )

Tarragona
Spain

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping ( email )

Limassol, 3603
Cyprus
00357252349 (Phone)
00357252674 (Fax)

HOME PAGE: http://www.csavva.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
536
rank
420,058
PlumX Metrics