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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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Related research

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

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References

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  1. Zhang, Lan & Mykland, Per A. & Ait-Sahalia, Yacine, 2005. "A Tale of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 100, pages 1394-1411, December.
  2. Neil Shephard & Ole Barndorff-Nielsen, 2003. "Econometrics of testing for jumps in financial economics using bipower variation," Economics Series Working Papers 2004-FE-01, University of Oxford, Department of Economics.
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  15. Lin Peng & Turan G. Bali, 2006. "Is there a risk-return trade-off? Evidence from high-frequency data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(8), pages 1169-1198.
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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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