Measuring the Risk-Return Tradeoff with Time-Varying Conditional Covariances / Esben Hedegaard, Robert J. Hodrick.

Format:

Book

Author/Creator:

Hedegaard, Esben.

Contributor:

National Bureau of Economic Research.

Hodrick, Robert J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20245.

NBER working paper series no. w20245

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

We examine the prediction of Merton's intertemporal CAPM that time varying risk premiums arise from the conditional covariances of returns on assets with the return on the market and other state variables. We find a positive and significant price of risk for the covariance with the market return that is driven by the time series variation in the conditional covariances, and the risk-premium on the market remains positive and significant after controlling for additional state variables. Our method estimates the risk-return tradeoff in the ICAPM using multiple portfolios as test assets.

Notes:

Print version record

June 2014.