A Capital Asset Pricing Model with Time-Varying Covariances

Tim Bollerslev, Robert Engle and Jeffrey Wooldridge

Journal of Political Economy, 1988, vol. 96, issue 1, 116-31

Abstract: The capital asset pricing model provides a theoretical structure for the pricing of assets with uncertain returns. The premium to induc e risk-averse investors to bear risk is proportional to the nondivers ifiable risk, which is measured by the covariance of the asset return with the market portfolio return. In this paper, a multivariate, gen eralized-autoregressive, conditional, heteroscedastic process is esti mated for returns to bills, bonds, and stocks where the expected retu rn is proportional to the conditional covariance of each return with that of a fully diversified or market portfolio. It is found that the conditional covariances are quite variable over time and are a signi ficant determinant of the time-varying risk premia. The implied betas are also time varying and forecastable. Copyright 1988 by University of Chicago Press.

Date: 1988
References: Add references at CitEc
Citations: View citations in EconPapers (1476)

Downloads: (external link)
http://dx.doi.org/10.1086/261527 full text (application/pdf)
Access to full text is restricted to subscribers. See http://www.journals.uchicago.edu/JPE for details.

Related works:
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:ucp:jpolec:v:96:y:1988:i:1:p:116-31

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().