The Risk Return Relationship: Evidence from Index Return and Realised Variance Series
AbstractThe risk return relationship is analysed in bivariate models for return and realised variance(RV) series. Based on daily time series from 21 international market indices for more than 13 years (January 2000 to February 2013), the empirical findings support the arguments of risk return tradeoff, volatility feedback and statistical balance. It is reasoned that the empirical risk return relationship is primarily shaped by two important data features: the negative contemporaneous correlation between the return and RV, and the difference in the autocorrelation structures of the return and RV.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2014-16.
Length: 32 pages
Date of creation: Mar 2014
Date of revision:
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Web page: http://www.economics.unsw.edu.au/
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risk premium; volatility feedback; return predictability; realised variance model; statistical balance;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-FMK-2014-04-11 (Financial Markets)
- NEP-GER-2014-04-11 (German Papers)
- NEP-RMG-2014-04-11 (Risk Management)
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