|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27247
|
| Title: | The Conditional Distribution of Excess Returns: An Empirical Analysis |
| Authors: | Foresi, Silverio
Peracchi, Franco |
| Keywords: | Asset pricing
generaized additive models
nonparametric methods |
| Issue Date: | Nov-1994 |
| Series/Report no.: | FIN-94-033 |
| Abstract: | In this paper we describe the cumulative distribution function of excess
returns conditional on a broad set of predictors that summarize the
state of the economy. We do so by estimating a sequence of conditional
logit models over a grid of values of the response variable. Our method
uncovers higher-order multidimensional structure that cannot be found by
modeling only the first two moments of the distribution. We compare
two approaches to modeling: one based on a conventional linear logit
model, the other an additive logit. The second approach avoids the
“curse of dimensionality” problem of fully nonparametric
methods while retaining both interpretability and the ability to let the
data determine the shape of the relationship between the response
variable and the predictors. We find that additive logit fits better
and reveals aspects of the data that remain undetected by the linear
logit. The additive model retains its superiority even in out-of-sample
prediction and portfolio selection performance, suggesting that this
model captures genuine features of the data which seem to be important
to guide investors’ optimal portfolio choices. |
| URI: | http://hdl.handle.net/2451/27247 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
