The Short-Term Risk Premium Puzzle: Revisited by Dynamic Herd Behavior (in Korean)

Beum Jo Park ()

Economic Analysis (Quarterly), 2014, vol. 20, issue 2, 1-26

Abstract: This paper perceives that the insignificant evidence of a positive risk-return relation(risk premium) for the short term is attributed primarily to dynamic herd behavior, which works as short-term noise, introduces a new method of measuring dynamic herd behavior, and extends the GARCH-M type model to account for dynamic herding and its effect on the relationship between returns and volatility as a proxy of risk. Applying the GJR-GARCH-M-Herding model to the daily KOSPI and NASDAQ stock data, we find a significant positive relationship in contrast to the results of the standard GJR-GARCH-M model and conclude that the short-term risk premium could be rendered ambiguous by dynamic herding that reflects short-term noises.

Keywords: Risk Premium Puzzle; Dynamic Herd Behavior; Volatility; Time-varying Herding Parameter; GARCH-M-Herding Models (search for similar items in EconPapers)
JEL-codes: C10 G02 G10 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bok:journl:v:20:y:2014:i:2:p:1-26

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