The Shape of the Risk Premium: Evidence from a Semiparametric Garch Model
AbstractWe examine the relationship between the risk premium on the S&P 500 index return and its conditional variance. We use the SMEGARCH - Semiparametric-Mean EGARCH - model in which the conditional variance process is EGARCH while the conditional mean is an arbitrary function of the conditional variance. For monthly S&P 500 excess returns, the relationship between the two moments that we uncover is nonlinear and nonmonotonic. Moreover, we find considerable persistence in the conditional variance as well as a leverage effect, as documented by others. Moreover, the shape of these relationships seems to be relatively stable over time.
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Bibliographic InfoPaper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 9911.
Length: 35 pages
Date of creation: 1999
Date of revision:
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ARCH models; asset icing; backfitting; Fourier series; kernel; risk emium;
Other versions of this item:
- Benoit Perron & Oliver Linton, 2004. "The Shape of the Risk Premium: Evidence from a Semiparametric GARCH Model," FMG Discussion Papers dp514, Financial Markets Group.
- Oliver Linton & Benoit Perron, 2000. "The shape of the risk premium: evidence from a semiparametric GARCH model," LSE Research Online Documents on Economics 24769, London School of Economics and Political Science, LSE Library.
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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