期刊
INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
卷 76, 期 -, 页码 -出版社
ELSEVIER SCIENCE INC
DOI: 10.1016/j.irfa.2021.101779
关键词
Extreme returns; Crash probability; Jackpot probability; Portfolio strategies
资金
- National Natural Science Foundation of China [71532009, 71790594, 72001033]
- Tianjin Development Program for Innovation and Entrepreneurship
- Fundamental Research Funds for the Central Universities [DUT19RC(3)064]
- National Social Science Fund of China [18ZDA095]
This paper utilizes a predictive model to estimate the probabilities of future extreme returns and identifies the significant influence of crash and jackpot probabilities in the Chinese stock market. Portfolios based on extreme return probabilities can offer profitable and stable foundations for uninformed investors in the Chinese stock market.
Based on the generalized logit predicting model from Jang and Kang (2019), this paper estimates the ex-ante probability of extreme returns and finds that the significantly negative (positive) influence of the predicted crash (jackpot) probability is robust, whether based on the traditional portfolio construction, orthogonalized portfolio construction and Fame-Macbeth cross-section regression. Further analyses show both the behavioral speculators' trading and rational investors' arbitrage limits could be the sources of mispricing caused by extreme returns. Overall, this paper applies a predicting model to estimate the probabilities of the future extreme returns, and figures out the significant influence and possible sources of the crash and jackpot probabilities in China. Portfolios based on extreme return probabilities can be profitable and steady bases for uninformed investors in the Chinese stock market.
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