Time-varying risk premia

Robert M. Anderson

Journal of Mathematical Economics, 2011, vol. 47, issue 3, 253-259

Abstract: Time-varying risk premia (TVRP) is one of the four sources of stock return autocorrelation. TVRP arises in a securities market equilibrium when the equilibrium expected returns of the available investments vary over time; in particular, the presence of TVRP does not indicate pricing inefficiency. This paper provides equilibrium upper bounds on TVRP, as a function of the return period, the time horizon over which the autocorrelations are calculated, and the variability of risk premia. These bounds on TVRP, in combination with the methods of Anderson et al. (2010), allow one to establish lower bounds on the contribution of partial price adjustment, and thus pricing inefficiency, to stock return autocorrelation.

Keywords: Time-varying risk premia; Stock return autocorrelation; Efficient markets hypothesis (search for similar items in EconPapers)
JEL-codes: C10 C81 G14 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:47:y:2011:i:3:p:253-259

DOI: 10.1016/j.jmateco.2010.12.010

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