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Using Fundamental Earnings Factors to Forecast Equity Market Volatility

Haim A. Mozes & John Launny Steffens

The Journal of Trading2018https://doi.org/10.3905/jot.2018.13.4.014article
ABDC C
Weight
0.30

What the paper says

This article introduces a model for forecasting future volatility using fundamental factors, including the extent to which the market’s valuation deviates from its predicted value, the losses reported by companies with negative earnings, projected earnings growth rates, and Treasury bill rates. The main result is that fundamental factors provide significant incremental explanatory power for predicting volatility relative to that provided by past volatility realizations alone. The explanatory power of fundamental factors is greatest when the VIX Index is at moderate rather than extreme levels so there is no expectation of long-term mean reversion for volatility. In addition, the explanatory power of fundamental factors is greatest when the model forecasts an increase in VIX. The overall conclusion of this study is that forecasts of future volatility should incorporate fundamental factors. <b>TOPICS:</b>Analysis of individual factors/risk premia, statistical methods

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https://doi.org/https://doi.org/10.3905/jot.2018.13.4.014

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@article{haim2018,
  title        = {{Using Fundamental Earnings Factors to Forecast Equity Market Volatility}},
  author       = {Haim A. Mozes & John Launny Steffens},
  journal      = {The Journal of Trading},
  year         = {2018},
  doi          = {https://doi.org/https://doi.org/10.3905/jot.2018.13.4.014},
}

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Evidence weight

0.30

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.11 × 0.4 = 0.04
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.