EconPapers    
Economics at your fingertips  
 

Estimating the risk-return trade-off with overlapping data inference

Esben Hedegaard and Robert Hodrick ()

Journal of Banking & Finance, 2016, vol. 67, issue C, 135-145

Abstract: Investigations of the basic risk-return trade-off for the market return typically use maximum likelihood estimation (MLE) with a monthly or quarterly horizon and data sampled to match the horizon even though daily data are available. We develop an overlapping data inference methodology for such models that uses all of the data while maintaining the monthly or quarterly forecasting period. Our approach recognizes that the first order conditions of MLE can be used as orthogonality conditions of the generalized method of moments (GMM). While parameter estimates from the different non-overlapping monthly samples that start on different days vary substantively, a formal test does not reject parameter equality and constrained estimation of the risk-return trade-off produces a statistically significant value of 3.35 in post-1955 data.

Keywords: Risk-return trade-off; Overlapping data inference; GARCH (search for similar items in EconPapers)
JEL-codes: G12 C18 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426616300103
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Estimating the Risk-Return Trade-off with Overlapping Data Inference (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:67:y:2016:i:c:p:135-145

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-08-13
Handle: RePEc:eee:jbfina:v:67:y:2016:i:c:p:135-145