Title: In search of statistically valid risk factors
Abstract: Click to increase image sizeClick to decrease image size AcknowledgementsThis research was supported by the Center for Risk Management Research at University of California, Berkeley. We thank Peter Bickel, Michael Dempster, Robert Korajczyk, James Sefton, Roger Stein and James Xiong for insightful discussions about the material in this article. We gratefully acknowledge comments from Andrew Ang, Robert J. Hodrick, Yuhang Xing and Xiaoyan Zhang on an early draft, which was entitled 'A Comment on "The Cross-Section of Volatility and Expected Returns": The Statistical Significance of FVIX is Driven by a Single Outlier'. Their comments led to substantial improvements in the paper. Incisive editorial comments of a referee and the editor-in-chief materially improved the presentation of this article.Notes1 The original CBOE Market Volatility Index was launched in 1993 under the name VIX and it was based on the Black–Scholes formula. In 2003, the CBOE created a new index based on market prices of call and put options. At that time, they renamed their original index VXO and gave the name VIX to the new index. Ang et al. (Citation2006) use the index now called VXO, but it is referred to as VIX in their article. To facilitate comparison with the material in their article, we retain the name VIX in this article.2 Detailed comments on our replication of (Ang et al. (Citation2006), Table I) are in appendix 1.3 To be more precise, the October 1987 FVIX and MKT are 26-sigma and -5.5-sigma events relative to the standard deviation of FVIX and MKT over the other 179 months in the sample.4 A δ-confidence ellipsoid for an OLS regression with p independent variables (including the intercept) and T observations is given by:(β-β^)⊤(X⊤X)s2(β-β^)≤(T-1)pT(T-p)Fp,T-p(δ).
Publication Year: 2015
Publication Date: 2015-02-16
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 7
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