Intertemporal risk-return tradeoff in the short-run

Joseph M. Marks and Kiseok Nam

Economics Letters, 2018, vol. 172, issue C, 81-84

Abstract: We hypothesize that good (bad) market news causes overpricing (underpricing) in the short-term, thereby inducing a weak or negative (significantly positive) intertemporal risk-return tradeoff. We verify this asymmetry through the indirect relation of a weak or positive association between excess market returns and contemporaneous volatility innovations conditional on good news, and a significantly negative relation conditional on bad news. We also show that the inclusion of a price adjustment term is critical for reliable estimation of the intertemporal risk-return relation.

Keywords: Intertemporal risk-return tradeoff; Underpricing; Overpricing; Price adjustment; Asymmetry (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:172:y:2018:i:c:p:81-84

DOI: 10.1016/j.econlet.2018.08.031

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