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.
Download (216Kb) | Preview
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.
Actions (login required)
|Record administration - authorised staff only|