There is a risk-return tradeoff after all
By: Eric Ghysels, Pedro Santa-Clara, Rossen Valkanov.
Contributors: Santa-Clara, Pedro.; Valkanov, Rossen I. 1973-; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10913; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10913.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Stocks -- Prices -- Econometric models.
Description: "This paper studies the ICAPM intertemporal relation between the conditional mean and the conditional variance of the aggregate stock market return.  We introduce a new estimator that forecasts monthly variance with past daily squared returns - the Mixed Data Sampling (or MIDAS) approach.  Using MIDAS, we find that there is a significantly positive relation between risk and return in the stock market.  This finding is robust in subsamples, to asymmetric specifications of the variance process, and to controlling for variables associated with the business cycle.  We compare the MIDAS results with tests of the ICAPM based on alternative conditional variance specifications and explain the conflicting results in the literature.  Finally, we offer new insights about the dynamics of conditional variance"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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