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    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 106, 2019 DOI: 10.1016/j.bankfin.2019.07.021

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The information content of forward moments

Research output: Contribution to journalJournal article

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The information content of forward moments. / Andreou, Panayiotis C.; Kagkadis, Anastasios; Philip, Dennis; Taamouti, Abderrahim.

In: Journal of Banking and Finance, Vol. 106, 01.09.2019, p. 527-541.

Research output: Contribution to journalJournal article

Harvard

Andreou, PC, Kagkadis, A, Philip, D & Taamouti, A 2019, 'The information content of forward moments', Journal of Banking and Finance, vol. 106, pp. 527-541. https://doi.org/10.1016/j.jbankfin.2019.07.021

APA

Andreou, P. C., Kagkadis, A., Philip, D., & Taamouti, A. (2019). The information content of forward moments. Journal of Banking and Finance, 106, 527-541. https://doi.org/10.1016/j.jbankfin.2019.07.021

Vancouver

Andreou PC, Kagkadis A, Philip D, Taamouti A. The information content of forward moments. Journal of Banking and Finance. 2019 Sep 1;106:527-541. https://doi.org/10.1016/j.jbankfin.2019.07.021

Author

Andreou, Panayiotis C. ; Kagkadis, Anastasios ; Philip, Dennis ; Taamouti, Abderrahim. / The information content of forward moments. In: Journal of Banking and Finance. 2019 ; Vol. 106. pp. 527-541.

Bibtex

@article{d5d62d64f8264cf8adecb772dd041a8d,
title = "The information content of forward moments",
abstract = "We estimate the term structures of risk-neutral forward variance and skewness, and examine their predictive power for equity market excess returns and variance. We use Partial Least Squares to extract a single predictive factor from each term structure that is motivated by the theoretical implications of affine no-arbitrage models. The empirical analysis shows that an increased forward variance factor, FVF (forward skewness factor, FSF) corresponds to a more negatively sloped forward variance (more U-shaped forward skewness) term structure, and significantly forecasts higher future market excess returns and variance. More importantly, FSF exhibits predictive power for market returns that is stronger than, and incremental to, that provided by FVF. However, it does not outperform FVF in terms of excess variance predictability.",
keywords = "Forward moments, Implied volatility surface, Partial least squares, Predictability of stock returns, Equity premium, Variance premium",
author = "Andreou, {Panayiotis C.} and Anastasios Kagkadis and Dennis Philip and Abderrahim Taamouti",
note = "This is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 106, 2019 DOI: 10.1016/j.bankfin.2019.07.021",
year = "2019",
month = "9",
day = "1",
doi = "10.1016/j.jbankfin.2019.07.021",
language = "English",
volume = "106",
pages = "527--541",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - The information content of forward moments

AU - Andreou, Panayiotis C.

AU - Kagkadis, Anastasios

AU - Philip, Dennis

AU - Taamouti, Abderrahim

N1 - This is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 106, 2019 DOI: 10.1016/j.bankfin.2019.07.021

PY - 2019/9/1

Y1 - 2019/9/1

N2 - We estimate the term structures of risk-neutral forward variance and skewness, and examine their predictive power for equity market excess returns and variance. We use Partial Least Squares to extract a single predictive factor from each term structure that is motivated by the theoretical implications of affine no-arbitrage models. The empirical analysis shows that an increased forward variance factor, FVF (forward skewness factor, FSF) corresponds to a more negatively sloped forward variance (more U-shaped forward skewness) term structure, and significantly forecasts higher future market excess returns and variance. More importantly, FSF exhibits predictive power for market returns that is stronger than, and incremental to, that provided by FVF. However, it does not outperform FVF in terms of excess variance predictability.

AB - We estimate the term structures of risk-neutral forward variance and skewness, and examine their predictive power for equity market excess returns and variance. We use Partial Least Squares to extract a single predictive factor from each term structure that is motivated by the theoretical implications of affine no-arbitrage models. The empirical analysis shows that an increased forward variance factor, FVF (forward skewness factor, FSF) corresponds to a more negatively sloped forward variance (more U-shaped forward skewness) term structure, and significantly forecasts higher future market excess returns and variance. More importantly, FSF exhibits predictive power for market returns that is stronger than, and incremental to, that provided by FVF. However, it does not outperform FVF in terms of excess variance predictability.

KW - Forward moments

KW - Implied volatility surface

KW - Partial least squares

KW - Predictability of stock returns

KW - Equity premium

KW - Variance premium

U2 - 10.1016/j.jbankfin.2019.07.021

DO - 10.1016/j.jbankfin.2019.07.021

M3 - Journal article

VL - 106

SP - 527

EP - 541

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

ER -