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The time-varying GARCH-in-mean model

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  • Dias, Gustavo Fruet

Abstract

I propose an estimation strategy for the stochastic time-varying risk premium parameter in the context of a time-varying GARCH-in-mean (TVGARCH-in-mean) model. A Monte Carlo study shows that the proposed algorithm has good finite sample properties. Using monthly excess returns on the CRSP index, I document that the risk premium parameter is indeed time-varying and shows high degree of persistence.

Suggested Citation

  • Dias, Gustavo Fruet, 2017. "The time-varying GARCH-in-mean model," Economics Letters, Elsevier, vol. 157(C), pages 129-132.
    • Handle: RePEc:eee:ecolet:v:157:y:2017:i:c:p:129-132
    DOI: 10.1016/j.econlet.2017.06.005
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    References listed on IDEAS

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    2. Christensen, Bent Jesper & Dahl, Christian M. & Iglesias, Emma M., 2012. "Semiparametric inference in a GARCH-in-mean model," Journal of Econometrics, Elsevier, vol. 167(2), pages 458-472.
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    4. DUFOUR, Jean-Marie & TAREK, Jouini, 2005. "Asymptotic Distribution of a Simple Linear Estimator for VARMA Models in Echelon Form," Cahiers de recherche 2005-09, Universite de Montreal, Departement de sciences economiques.
    5. Sofia Anyfantaki & Antonis Demos, 2016. "Estimation and Properties of a Time-Varying EGARCH(1,1) in Mean Model," Econometric Reviews, Taylor & Francis Journals, vol. 35(2), pages 293-310, February.
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    7. Linton, Oliver & Perron, Benoit, 2003. "The Shape of the Risk Premium: Evidence from a Semiparametric Generalized Autoregressive Conditional Heteroscedasticity Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 354-367, July.
    8. Liudas Giraitis & George Kapetanios & Anne Wetherilt & Filip ŽIKEŠ, 2016. "Estimating the Dynamics and Persistence of Financial Networks, with an Application to the Sterling Money Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(1), pages 58-84, January.
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    Cited by:

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    3. Mirza, Nawazish & Naqvi, Bushra & Rahat, Birjees & Rizvi, Syed Kumail Abbas, 2020. "Price reaction, volatility timing and funds’ performance during Covid-19," Finance Research Letters, Elsevier, vol. 36(C).
    4. Díaz, Antonio & Escribano, Ana & Esparcia, Carlos, 2024. "Sustainable risk preferences on asset allocation: a higher order optimal portfolio study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).

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    More about this item

    Keywords

    Risk-return tradeoff; Time-varying coefficients; Iterative estimators; GARCH-type models;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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