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Stock Returns, Asymmetric Volatility, Risk Aversion, And Business Cycle: Some New Evidence

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  • SEI-WAN KIM
  • BONG-SOO LEE
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    Abstract

    "We study how three interrelated phenomena-excess stock returns and risk relation, risk aversion, and asymmetric volatility movement-change over business cycles. Using an asymmetric generalized autoregressive conditional heteroskedasticity in mean model and a Markov switching model, we find that excess stock return increases and asymmetric volatility movement is weakened during boom periods. This suggests that investors become more risk-averse during boom periods (i.e., procyclical risk aversion), which we confirm using a calibration of a simple equilibrium model". ("JEL "C32, E32, G12) Copyright (c) 2007 Western Economic Association International.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7295.2007.00066.x
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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 46 (2008)
    Issue (Month): 2 (04)
    Pages: 131-148

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    Handle: RePEc:bla:ecinqu:v:46:y:2008:i:2:p:131-148

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    Cited by:
    1. Ɓukasz Kwiatkowski, 2011. "Bayesian Analysis of a Regime Switching In-Mean Effect for the Polish Stock Market," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 3(4), pages 187-219, December.
    2. Chang, Kuang-Liang, 2012. "The impacts of regime-switching structures and fat-tailed characteristics on the relationship between inflation and inflation uncertainty," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 523-536.
    3. Arisoy, Yakup Eser, 2010. "Volatility risk and the value premium: Evidence from the French stock market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 975-983, May.

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