The shape of the risk premium: evidence from a semiparametric GARCH model

Oliver Linton and Benoit Perron ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We examine the relationship between the risk premium on the S&P500 index total return and its conditional variance. We propose a new semiparametric model in which the conditional variance process is parametric, while the conditional mean is an arbitrary function of the conditional variance. For monthly S&P 500 excess returns, the relationship between the two moments that we uncover is nonlinear and nonmonotonic. Moreover, we find considerable persistence in the conditional variance as well as a leverage effect as documented by others.

Keywords: ARCH; Asset Pricing; Backfitting; Fourier Series; Kernel; Risk Premium (search for similar items in EconPapers)
JEL-codes: C13 C14 G12 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2000-09-22
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http://eprints.lse.ac.uk/24769/ Open access version. (application/pdf)

Related works:
Working Paper: The Shape of the Risk Premium: Evidence from a Semiparametric GARCH Model (2004)
Working Paper: The Shape of the Risk Premium: Evidence from a Semiparametric Garch Model (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24769

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