Robustness of the Risk-Return Relationship in the U.S. Stock Market

Markku Lanne and Jani Luoto

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we study the risk-return relationship in monthly U.S. stock returns (1928:1— 2004:12) using GARCH-in-Mean 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.

Keywords: ICAPM model; relative risk aversion; GARCH-in-Mean model; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: G12 C22 C11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-rmg
Date: 2007
View list of references

Downloads: (external link)
http://mpra.ub.uni-muenchen.de/3879/

Related works:
Journal Article: Robustness of the risk-return relationship in the U.S. stock market (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany
Address: Schackstr. 4, D-80539 Munich, Germany
Contact information at EDIRC.
Series data maintained by Ekkehart Schlicht ().