Abstract
| Language | English |
|---|---|
| Article number | 1150003 |
| Number of pages | 19 |
| Journal | Annals of Financial Economics |
| Volume | 6 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Jun 2011 |
| Externally published | Yes |
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Quantile regression as a tool for portfolio investment decisions during times of financial distress. / Allen, D. E.; Powell, R. J.; Singh, A. K.
In: Annals of Financial Economics, Vol. 6, No. 1, 1150003, 06.2011.Research output: Contribution to journal › Article › Research › peer-review
TY - JOUR
T1 - Quantile regression as a tool for portfolio investment decisions during times of financial distress
AU - Allen, D. E.
AU - Powell, R. J.
AU - Singh, A. K.
PY - 2011/6
Y1 - 2011/6
N2 - The worldwide impact of the Global Financial Crisis (GFC) on stock markets, investors and fund managers has lead to a renewed interest in appropriate tools for robust risk management. Quantile regression is a powerful technique and deserves the interest of financial decision makers given its remarkable capabilities for capturing and explaining the behavior of financial return series across a distribution more effectively than ordinary least squares regression methods which are the standard tool. In this paper, we present quantile regression estimation as an attractive additional investment tool, which is more effective than Ordinary Least Squares (OLS) in analyzing information across the quantiles of a distribution. This translates into the more accurate calibration of asset pricing models and subsequent informational gains in portfolio formation. We present empirical evidence of the superior capabilities of quantile regression based techniques as applied across the quantiles of return distributions to derive information for portfolio formation. We show, via stocks in Dow Jones Industrial Index, that at times of financial shocks, such as the GFC, a portfolio of stocks formed using quantile regression in the context of the Fama–French three-factor model, performs better than the one formed using traditional OLS.
AB - The worldwide impact of the Global Financial Crisis (GFC) on stock markets, investors and fund managers has lead to a renewed interest in appropriate tools for robust risk management. Quantile regression is a powerful technique and deserves the interest of financial decision makers given its remarkable capabilities for capturing and explaining the behavior of financial return series across a distribution more effectively than ordinary least squares regression methods which are the standard tool. In this paper, we present quantile regression estimation as an attractive additional investment tool, which is more effective than Ordinary Least Squares (OLS) in analyzing information across the quantiles of a distribution. This translates into the more accurate calibration of asset pricing models and subsequent informational gains in portfolio formation. We present empirical evidence of the superior capabilities of quantile regression based techniques as applied across the quantiles of return distributions to derive information for portfolio formation. We show, via stocks in Dow Jones Industrial Index, that at times of financial shocks, such as the GFC, a portfolio of stocks formed using quantile regression in the context of the Fama–French three-factor model, performs better than the one formed using traditional OLS.
U2 - 10.1142/S2010495211500035
DO - 10.1142/S2010495211500035
M3 - Article
VL - 6
JO - Annals of Financial Economics
T2 - Annals of Financial Economics
JF - Annals of Financial Economics
SN - 2010-4952
IS - 1
M1 - 1150003
ER -