John will present his work titled “Crash Narratives and Predictability” (co-authored with Richard McGee, and Xiaomeng Wang).
This paper demonstrates the superior ability of recently developed Crash Narratives to predict volatility in the US stock market. Compared to other methods, Crash Narratives perform better during periods of high volatility and NBER recessions. They also provide accurate out-of-sample forecasts of conditional variance. Using conditional variance forecasts based on Crash Narratives, we re-examine the predictability of returns using the variance risk premium and develop a profitable volatility-managed portfolio strategy. This strategy outperforms traditional volatility-managed and buy-and-hold strategies, yielding higher alphas and Sharpe ratios, with cumulative returns at least 25% greater than those of alternative strategies.
John Cotter is Full Professor in Finance and the Chair in Quantitative Finance at University College Dublin. He is a Research Fellow at the UCLA Ziman Research Center for Real Estate. John has previously had visiting positions at UCLA, London School of Economics, UBC and ESSEC Business School. John's research, teaching and consultancy interests are in the areas of Volatility modelling and measuring, risk management and investment analysis with applications in equity, currency, derivative, fixed income and real estate markets. He has taught extensively on undergraduate, graduate and executive programmes. John has been awarded a UCD Faculty of Commerce Outstanding Educator Teaching Award. John is the founding Director of the Centre for Financial Markets at University College Dublin. He is the Director of the Financial Mathematics Computation Research Cluster (FMC2) a multi-university cross-discipline research body in Finance. John is Associate Editor of the Journal of Banking and Finance, the Journal of International Financial Markets, Institutions & Money and the European Journal of Finance. John has published many professional papers including in the Review of Financial Studies, the Journal of Banking and Finance, and the Journal of International Money and Finance. He has received many research grants including being a Principal Investigator in the Financial Mathematics Computation Research Cluster (FMC2) funded by Science Foundation Ireland. John was awarded an Outstanding Research Contribution Award at the UCD School of Business, University College Dublin. John is a member of the Group of Economic Advisers for the European Securities Markets Authority (ESMA), the supra-national supervisor of European financial markets. John has consulted for many organizations both in and outside Ireland. He has also served as an expert witness in several financial cases.
The seminar will be held in English.
Major information: Andi Duqi (andi.duqi@unibo.it).