Linton, Oliver and Perron, Benoit (2000) The shape of the risk premium: evidence from a semiparametric GARCH model. Discussion paper, 514. Financial Markets Group, London School of Economics and Political Science, London, UK.
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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)|
|Additional Information:||© 2000 The Authors|
|Uncontrolled Keywords:||ARCH, Asset Pricing, Backfitting, Fourier Series, Kernel, Risk Premium|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
|Journal of Economic Literature Classification System:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C14 - Semiparametric and Nonparametric Methods
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation
|Sets:||Research centres and groups > Financial Markets Group (FMG)
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