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An intertemporal CAPM with stochastic volatility

Campbell, John Y. and Giglio, Stefano and Polk, Christopher (2012) An intertemporal CAPM with stochastic volatility. National Bureau of Economic Research. (Unpublished)

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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
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: 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
Date Deposited: 16 Apr 2012 10:55
Last Modified: 15 Jun 2017 11:39
URI: http://eprints.lse.ac.uk/id/eprint/43095

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