The Shape of the Risk Premium: Evidence from a Semiparametric Garch Model

Oliver Linton and Benoit Perron ()

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: We examine the relationship between the risk premium on the S&P 500 index return and its conditional variance. We use the SMEGARCH - Semiparametric-Mean EGARCH - model in which the conditional variance process is EGARCH 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. Moreover, the shape of these relationships seems to be relatively stable over time.

Keywords: ARCH models; asset icing; backfitting; Fourier series; kernel; risk emium (search for similar items in EconPapers)
JEL-codes: C20 G10 G24 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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 (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:9911

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