Risk-neutral moments and return predictability: International evidence

Abstract

This paper documents risk-neutral moments of returns on 29 country-/region-specific ETFs to provide international uncertainty proxies for as many locations as possible. Our evidence shows these ETFs can generally reflect idiosyncratic information from international markets, but the predictive abilities of risk-neutral moments are heterogeneous among them. The evidence from panel prediction shows that the risk-neutral standard deviation ((Figure presented.)) can positively predict, but skewness ((Figure presented.)) and excess kurtosis ((Figure presented.)) negatively predict, the future excess returns in time-series analysis. Moreover, results from the post-ranking performance show that the ETFs with low (Figure presented.) on average earn an extra 4.55% annualized monthly excess return, compared with those with high (Figure presented.).