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A reassessment of the risk-return tradeoff at the daily horizon

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  • Benoît Sévi

    ()
    (Aix-Marseille School of Economics (DEFI))

  • César Baena

    ()
    (BEM Bordeaux Management School)

Abstract

This note makes two contributions by extending the analysis in Bali and Peng (2006) which investigates the risk-return tradeoff at the daily horizon using high-frequency data. Our first contribution is to show that the empirical relation between returns and risk is not validated for recent years. Our second contribution is to assess the importance of disentangling jumps from the continuous component using high-frequency data and recent nonparametric methods. We show that similar results are obtained using either realized variance or an alternative measure of realized variance which is robust to jumps thereby providing evidence that jumps do not improve significantly the explanatory power in the risk-return relation.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 190-203

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Handle: RePEc:ebl:ecbull:eb-11-00845

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Keywords: risk-return tradeoff; ICAPM; realized volatility; bipower variation; jumps.;

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References

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  1. Tim Bollerslev & Tzuo Hao & George Tauchen, 2008. "Expected Stock Returns and Variance Risk Premia," CREATES Research Papers 2008-48, School of Economics and Management, University of Aarhus.
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  15. Bali, Turan G. & Demirtas, K. Ozgur & Levy, Haim, 2009. "Is There an Intertemporal Relation between Downside Risk and Expected Returns?," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 44(04), pages 883-909, August.
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Cited by:
  1. Benoît Sévi & César Baena, 2013. "The explanatory power of signed jumps for the risk-return tradeoff," Economics Bulletin, AccessEcon, vol. 33(2), pages 1029-1046.

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