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. Discussion paper, 514. Financial Markets Group, 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:	http://fmg.lse.ac.uk
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) Collections > Economists Online
Rights:	http://www.lse.ac.uk/library/collections/folder/LSERO.aspx
Identification Number:	514
Date Deposited:	06 Aug 2009 14:24
URL:	http://eprints.lse.ac.uk/24769/

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