Lanne, Markku and Luoto, Jani (2007): Robustness of the RiskReturn Relationship in the U.S. Stock Market.

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Abstract
In this paper, we study the riskreturn relationship in monthly U.S. stock returns (1928:1— 2004:12) using GARCHinMean models. In particular, we consider the robustness of the relationship with respect to the omission of the intercept term in the equation for the expected excess return recently recommended by Lanne and Saikkonen (2006). The existence of the relationship is quite robust, but its estimated strength is dependent on the prior belief concerning the intercept. This is the case in particular in the first half of the sample period, where also the coefficient of the relative risk aversion is found to be smaller and the equity premium greater than in the latter half.
Item Type:  MPRA Paper 

Institution:  HECER 
Original Title:  Robustness of the RiskReturn Relationship in the U.S. Stock Market 
Language:  English 
Keywords:  ICAPM model; relative risk aversion; GARCHinMean model; Bayesian analysis 
Subjects:  G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C11  Bayesian Analysis: General 
Item ID:  3879 
Depositing User:  Markku Lanne 
Date Deposited:  06. Jul 2007 
Last Modified:  18. Feb 2013 19:11 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/3879 