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

Author

Listed:
  • 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.

Suggested Citation

  • Benoît Sévi & César Baena, 2012. "A reassessment of the risk-return tradeoff at the daily horizon," Economics Bulletin, AccessEcon, vol. 32(1), pages 190-203.
  • Handle: RePEc:ebl:ecbull:eb-11-00845
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    References listed on IDEAS

    as
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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.

    More about this item

    Keywords

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

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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