Risk-Return Trade-Off for European Stock Markets
Nektarios Aslanidis (),
Charlotte Christiansen and
Christos Savva ()
CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
This paper adopts dynamic factor models with macro-fi?nance predictors to revisit the intertemporal risk-return relation in ?five large European stock markets. We identify country specifi?c, Euro area, and global factors to determine the conditional moments of returns considering the role of higher-order moments as additional measures of risk. The preferred combination of factors varies across countries. In the linear model, there is a strong but negative relation between conditional returns and conditional volatility. A Markov switching model describes the risk-return trade-off well. A number of variables have explanatory power for the states of the European stock markets.
Keywords: Risk-return trade-off; Dynamic factor model; Markov switching; Macro-?nance predictors; Higher order moments (search for similar items in EconPapers)
JEL-codes: C22 G11 G12 G17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-ore and nep-rmg
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Journal Article: Risk-return trade-off for European stock markets (2016)
Working Paper: Risk-Return Trade-Off for European Stock Markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2013-31
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