Risk-return Trade-off for European Stock Markets
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Total Pages | : 59 |
Release | : 2015 |
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Total Pages | : 59 |
Release | : 2015 |
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Author | : Nektarios Aslanidis |
Publisher | : |
Total Pages | : 16 |
Release | : 2019 |
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This paper investigates flight-to-safety from stocks to bonds in six European markets. We use quantile regressions to identify flight-to-safety episodes. The conditional risk-return trade-off on the stock markets is negative. Flight-to-safety episodes strengthen the negative trade-off. The effects of flight-to-safety episodes on the trade-off are qualitatively similar for own country flight-to-safety episodes, for flight from own country stock market to the US bond market, and for US flight-to-safety episodes. The strength of the trade-off is strongest for US flight-to-safety episodes. Flight-from-safety has the opposite effect on the trade-off.
Author | : Geert Dhaene |
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Total Pages | : 26 |
Release | : 2016 |
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We study international asset pricing in a large-dimensional multivariate GARCH-in-mean framework. We examine different estimation methods and find that the two-step estimation method proposed by Bali and Engle (2010) tends to underestimate the risk-return coefficient and the corresponding standard error. We also show that the estimate is improved by one-step estimation and by increasing the cross-sectional dimension. Using stock index returns for up to 24 countries and 4 major currencies in the period 2001-2015, one-step estimation gives a market risk-return coefficient of around 6. The estimate is robust to variations in model specification, data frequency, and the number of stock markets considered.
Author | : Enrique Salvador |
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Release | : 2014 |
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This paper analyzes the risk-return trade-off in European equities considering both temporal and cross-sectional dimensions. In our analysis, we introduce not only the market portfolio but also 15 industry portfolios comprising the entire market. Several bivariate GARCH models are estimated to obtain the covariance matrix between excess market returns and the industrial portfolios and the existence of a risk-return trade-off is analyzed through a cross-sectional approach using the information in all portfolios. It is obtained evidence for a positive and significant risk-return trade-off in the European market. This conclusion is robust for different GARCH specifications and is even more evident after controlling for the main financial crisis during the sample period.
Author | : Enrique Salvador |
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Total Pages | : |
Release | : 2014 |
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This paper studies the risk-return tradeoff in some of the main emerging stock markets in the world. Although previous studies on emerging markets were not able to show a positive and significant tradeoff, favorable evidence can be obtained if a non-linear framework between return and risk is considered. However, this relationship between return and risk is essentially observed in periods of financial stability but not in times of market jitters. Using 15 years of weekly data observations in a Regime Switching-GARCH framework, I show favorable evidence in most of the emerging markets during low volatility periods, but not for periods of financial turmoil or using the traditional linear GARCH-M approach.
Author | : Hui Guo |
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Total Pages | : 34 |
Release | : 2013 |
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We investigate the risk-return relation in international stock markets using realized variance constructed from MSCI (Morgan Stanley Capital International) daily stock price indices. In contrast with CAPM, realized variance by itself provides negligible information about future excess stock market returns; however, we uncover a positive and significant risk-return tradeoff in many countries after controlling for the (U.S.) consumption-wealth ratio. U.S. realized variance is also significantly related to future international stock market returns; more importantly, it always subsumes the information content of its local counterparts. Our results indicate that stock market variance is an important determinant of the equity premium.
Author | : Hui Guo |
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Total Pages | : 45 |
Release | : 2012 |
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Using a semiparametric estimation technique, we show that the risk-return tradeoff and the Sharpe ratio of the stock market increases monotonically with the consumption wealth ratio (CAY) across time. While early studies have commonly interpreted such a finding as evidence of the countercyclical variation in aggregate relative risk aversion (RRA), we argue that it mainly reflects changes in investment opportunities for two reasons. First, we fail to reject the null hypothesis of constant RRA after controlling for CAY as a proxy for the hedge against changes in the investment opportunity set. Second, by contrast with habit formation models but consistent with ICAPM, we find that loadings on the conditional stock market variance scaled by CAY are negatively priced in the cross-sectional regressions. For illustration, we replicate the countercyclical stock market risk-return tradeoff using simulated data from Guo's (2004) limited stock market participation model, in which RRA is constant and CAY is a proxy for shareholders' liquidity conditions.
Author | : Hui Guo |
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Total Pages | : 0 |
Release | : 2002 |
Genre | : Rate of return |
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Author | : Hui Guo |
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Total Pages | : |
Release | : 2006 |
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We investigate the risk-return relation in international stock markets using realized variance constructed from MSCI (Morgan Stanley Capital International) daily stock price indexes. In contrast with CAPM, realized variance by itself provides negligible information about future excess stock market returns; however, we uncover a positive and significant risk-return tradeoff in many countries after controlling for the (U.S.) consumption-wealth ratio. U.S. realized variance is also significantly related to future international stock market returns; more importantly, it always subsumes the information content of its local counterparts. Our results indicate that stock market variance is an important determinant of the equity premium.
Author | : Gabriel A. Hawawini |
Publisher | : |
Total Pages | : 204 |
Release | : 1984 |
Genre | : Capital investments |
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