Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10476063 | Journal of Financial Economics | 2005 | 40 Pages |
Abstract
This paper studies the intertemporal relation between the conditional mean and the conditional variance of the aggregate stock market return. We introduce a new estimator that forecasts monthly variance with past daily squared returns, the mixed data sampling (or MIDAS) approach. Using MIDAS, we find a significantly positive relation between risk and return in the stock market. This finding is robust in subsamples, to asymmetric specifications of the variance process and to controlling for variables associated with the business cycle. We compare the MIDAS results with tests of the intertemporal capital asset pricing model based on alternative conditional variance specifications and explain the conflicting results in the literature. Finally, we offer new insights about the dynamics of conditional variance.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Eric Ghysels, Pedro Santa-Clara, Rossen Valkanov,