Risk-Return Trade-Off for European Stock Markets
AbstractThis paper adopts dynamic factor models with macro-fi?nance predictors to revisit the intertemporal risk-return relation in ?five large European stock markets. We identify country specifi?c, Euro area, and global factors to determine the conditional moments of returns considering the role of higher-order moments as additional measures of risk. The preferred combination of factors varies across countries. In the linear model, there is a strong but negative relation between conditional returns and conditional volatility. A Markov switching model describes the risk-return trade-off well. A number of variables have explanatory power for the states of the European stock markets.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-31.
Date of creation: 29 Jul 2013
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Web page: http://www.econ.au.dk/afn/
Risk-return trade-off; Dynamic factor model; Markov switching; Macro-?nance predictors; Higher order moments;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-EEC-2013-11-16 (European Economics)
- NEP-ORE-2013-11-16 (Operations Research)
- NEP-RMG-2013-11-16 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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