Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7362563 | Journal of Financial Markets | 2014 | 43 Pages |
Abstract
I investigate a relation between the conditional mean and variance of the aggregate stock return using a model that allows the relevance of the risk-return trade-off and autocorrelation to change over time. The model detects a positive risk-return relation, but the importance of the risk-return relation fluctuates with the level of information flow, measured by volatility. During low-volatility periods, market-wide persistence in returns increases, leading to a failure of the pure risk-return explanation for expected returns. This offers an explanation as to why detection of a positive risk-return trade-off has been challenging, while autocorrelation has been a robust finding.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jyri Kinnunen,