Campbell, John Y., Giglio, Stefano and Polk, Christopher (2012) An intertemporal CAPM with stochastic volatility. National Bureau of Economic Research. (Unpublished)
Abstract
This paper extends the approximate closed-form intertemporal capital asset pricing model of Campbell (1993) to allow for stochastic volatility. The return on the aggregate stock market is modeled as one element of a vector autoregressive (VAR) system, and the volatility of all shocks to the VAR is another element of the system. The paper presents evidence that growth stocks underperform value stocks because they hedge two types of deterioration in investment opportunities: declining expected stock returns, and increasing volatility.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | © 2012 The Authors |
| Uncontrolled Keywords: | ICAPM, time-varying expected returns, stochastic volatility, value premium |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S.; Canada: 1913- |
| Sets: | Departments > Finance Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/43095/ |
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