Risk-Return Trade-Off for European Stock Markets

Nektarios Aslanidis (), Charlotte Christiansen and Christos Savva ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper adopts dynamic factor models with macro-fi?nance predictors to revisit the intertemporal risk-return relation in ?five large European stock markets. We identify country specifi?c, Euro area, and global factors to determine the conditional moments of returns considering the role of higher-order moments as additional measures of risk. The preferred combination of factors varies across countries. In the linear model, there is a strong but negative relation between conditional returns and conditional volatility. A Markov switching model describes the risk-return trade-off well. A number of variables have explanatory power for the states of the European stock markets.

Keywords: Risk-return trade-off; Dynamic factor model; Markov switching; Macro-?nance predictors; Higher order moments (search for similar items in EconPapers)
JEL-codes: C22 G11 G12 G17 (search for similar items in EconPapers)
Pages: 33
Date: 2013-07-29
New Economics Papers: this item is included in nep-eec, nep-ore and nep-rmg
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https://repec.econ.au.dk/repec/creates/rp/13/rp13_31.pdf (application/pdf)

Related works:
Journal Article: Risk-return trade-off for European stock markets (2016)
Working Paper: Risk-Return Trade-Off for European Stock Markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2013-31

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