This paper examines the intertemporal relation between downside risk and expected stock returns. Value at Risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant...

It has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older. However, the well-known decision rules such as mean-variance or stochastic dominance rules are unable to explain this common practice....

This paper provides new evidence on the time-series predictability of stock market returns by introducing a test of nonlinear mean reversion. The performance of extreme daily returns is evaluated in terms of their power to predict short- and long-horizon returns on various stock market indices...

This paper introduces a model-independent measure of aggregate idiosyncratic risk, which does not require estimation of market betas or correlations and is based on the concept of gain from portfolio diversification. The statistical results and graphical analyses provide strong evidence that...

This paper develops an unconditional and conditional extreme value approach to calculating value at risk (VaR), and shows that the maximum likely loss of financial institutions can be more accurately estimated using the statistical theory of extremes. The new approach is based on the...

This article presents a comprehensive study of continuous time GARCH (generalized autoregressive conditional heteroskedastic) modeling with the thintailed normal and the fat‐tailed Student's‐t and generalized error distributions (GED). The study measures the degree of mean reversion in...

This study examines derivatives use of foreign exchange, interest rate, and commodities risk by nonfinancial firms across multiple industries, using data from 1995 to 2001. This work considers the interaction of a firm's risk exposures, derivatives use, and real operations simultaneously, and...

Recent advances in econometric methodology and newly available sources of data are used to examine empirically the performance of the various extreme‐value volatility estimators that have been proposed over the past two decades. Overwhelming support is found for the use of extreme‐value...

This article introduces a two‐factor‐discrete‐time‐stochastic‐volatility model that allows for departures from linearity in the conditional mean and incorporates serially correlated unexpected news, asymmetry, and level effects into the definition of conditional volatility of the short...