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On the Impacts of Crisis on the Risk Premium: Evidence from the US Stock Market using a Conditional CAPM

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  • Mohamed El Hedi Arouri

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

  • Fredj Jawadi

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article investigates the evolution of the US risk premium in periods of crisis. First, we estimate a conditional CAPM with time-varying systematic risk and price of risk using a multivariate GARCH-in-Mean model. Second, we study the structural breaks in the US risk premium. Finally, we relate the obtained results to important facts and economic events. Our findings show that the US risk premium increased significantly during periods of crisis and that the last 2007-2009 financial crisis has had the largest impact.

Suggested Citation

  • Mohamed El Hedi Arouri & Fredj Jawadi, 2010. "On the Impacts of Crisis on the Risk Premium: Evidence from the US Stock Market using a Conditional CAPM," Working Papers hal-00507824, HAL.
    • Handle: RePEc:hal:wpaper:hal-00507824
    Note: View the original document on HAL open archive server: https://hal.science/hal-00507824
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    References listed on IDEAS

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    5. Arouri Mohamed el hédi & Fouquau Julien, 2009. "On the short-term influence of oil price changes on stock markets in gcc countries: linear and nonlinear analyses," Economics Bulletin, AccessEcon, vol. 29(2), pages 795-804.
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    Cited by:

    1. Vit Posta, 2012. "Time-Varying Risk Premium in the Czech Capital Market: Did the Market Experience a Structural Shock in 2008–2009?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 450-470, November.
    2. Dimitrios Dimitriou & Theodore Simos, 2013. "International portfolio diversification: an ICAPM approach with currency risk," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(2), pages 177-189, September.

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

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