Quantile Regression Applications in Finance

Authored by: Oliver Linton , Zhijie Xiao

Handbook of Quantile Regression

Print publication date:  October  2017
Online publication date:  October  2017

Print ISBN: 9781498725286
eBook ISBN: 9781315120256
Adobe ISBN:

10.1201/9781315120256-20

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Abstract

Distributional information, such as variance, skewness, value-at-risk, expected shortfall (or conditional versions of these) of returns and other economic variables are very important for investment and decision-making in finance. Using variance as a measure for risk, Markowitz (1952) proposed the mean-variance efficient portfolio that minimizes variance for a given expected return. Even nowadays, the mean-variance portfolio construction is widely used. An important and very popular model that takes some account of distributional information is the ARCH/GARCH model (Engle, 1982; Bollerslev, 1986) where the role of conditional volatility, in addition to the conditional mean, is emphasized. An observed process can be serially uncorrelated but the conditional variances can have significant serial correlation. Since Engle (1982), volatility has played an important role in finance.

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