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Risk-return trade-off in international stock returns: Skewness and business cycles

Author

Listed:
  • Nyberg, Henri
  • Savva, Christos S.

Abstract

The fundamental risk-return relation is examined with a flexible regime switching model combining the impact of skewness and business cycle regimes in stock returns. Key methodological and empirical findings point out the need for a highly nonlinear and non-Gaussian model to get a reliable picture on the risk-return relationship. With an international dataset of major countries to global financial markets, the empirical results show that accounting especially for skewness patterns leads to the expected positive risk-return relation, which is importantly also maintained over different business cycle conditions.

Suggested Citation

  • Nyberg, Henri & Savva, Christos S., 2026. "Risk-return trade-off in international stock returns: Skewness and business cycles," Econometrics and Statistics, Elsevier, vol. 37(C), pages 42-60.
    • Handle: RePEc:eee:ecosta:v:37:y:2026:i:c:p:42-60
    DOI: 10.1016/j.ecosta.2023.02.004
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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