The role of jump dynamics in the risk–return relationship

Bala Arshanapalli, Frank Fabozzi () and William Nelson

International Review of Financial Analysis, 2013, vol. 29, issue C, 212-218

Abstract: Surprisingly, a positive risk–return relationship has not been consistently observed for the traditional GARCH in the mean model in other studies. In this paper, we employ a combination of the jump diffusion and GARCH model in the mean equation to test the risk–return relationship for U.S. stock returns. The results suggest a statistically significant relationship between risk and return if the risk measure includes components of smoothly changing variance and jump events.

Keywords: Time-varying risk premium; Mixed GARCH; Jump diffusion model (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:29:y:2013:i:c:p:212-218

DOI: 10.1016/j.irfa.2012.11.004

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