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The shape of the risk premium: evidence from a semiparametric GARCH model

Linton, Oliver and Perron, Benoit (2000) The shape of the risk premium: evidence from a semiparametric GARCH model. Financial Markets Group Discussion Papers (514). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We examine the relationship between the risk premium on the S&P500 index total return and its conditional variance. We propose a new semiparametric model in which the conditional variance process is parametric, while the conditional mean is an arbitrary function of the conditional variance. For monthly S&P 500 excess returns, the relationship between the two moments that we uncover is nonlinear and nonmonotonic. Moreover, we find considerable persistence in the conditional variance as well as a leverage effect as documented by others.

Item Type: Monograph (Discussion Paper)
Official URL: https://www.fmg.ac.uk/
Additional Information: © 2000 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
JEL classification: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C14 - Semiparametric and Nonparametric Methods
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited: 06 Aug 2009 14:24
Last Modified: 13 Sep 2024 19:42
URI: http://eprints.lse.ac.uk/id/eprint/24769

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