Countercyclical and time-varying reward to risk and the equity premium

Jan Antell and Mika Vaihekoski

Research in International Business and Finance, 2023, vol. 66, issue C

Abstract: We study whether the equity premium is related to volatility or variance, whether the reward to market risk is positive, and whether it behaves in a counter-cyclical fashion. Using APARCH models for the conditional market risk, we compare the traditional and the new testing approach of Antell and Vaihekoski (2019) on the monthly US equity premium from 1928 to 2018. The results from the new approach give stronger support for the pricing of volatility rather than variance and for positive reward to market risk. The support for timevarying and countercyclical reward to risk coefficient is smaller than previously thought.

Keywords: Conditional asset pricing; Equity premium; Reward to risk; Market risk; Business cycles (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001435

DOI: 10.1016/j.ribaf.2023.102017

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