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Risk-Return Trade-Off for European Stock Markets

Listed author(s):
  • Nektarios Aslanidis

    ()

    (Department of Economics, FCEE, University Rovira Virgili)

  • Charlotte Christiansen

    ()

    (Cyprus University of Technology)

  • Christos S. Savva

    ()

    (Aarhus University and CREATES)

This paper adopts dynamic factor models with macro-fi?nance predictors to revisit the intertemporal risk-return relation in ?five large European stock markets. We identify country specifi?c, Euro area, and global factors to determine the conditional moments of returns considering the role of higher-order moments as additional measures of risk. The preferred combination of factors varies across countries. In the linear model, there is a strong but negative relation between conditional returns and conditional volatility. A Markov switching model describes the risk-return trade-off well. A number of variables have explanatory power for the states of the European stock markets.

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File URL: ftp://ftp.econ.au.dk/creates/rp/13/rp13_31.pdf
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Paper provided by Department of Economics and Business Economics, Aarhus University in its series CREATES Research Papers with number 2013-31.

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Length: 33
Date of creation: 29 Jul 2013
Handle: RePEc:aah:create:2013-31
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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