Theoretical Relations between Risk Premiums and Conditional Variances
Many statistical models of time-varying risk premiums, including the autoregressive conditional heteroscedasticity (ARCH)-in-mean, attempt to exploit a relation between risk premiums and conditional variances or covariances of asset returns. We examine this relation in numerical versions of a dynami...
| Veröffentlicht in: | Journal of Business & Economic Statistics. - American Statistical Association, 1983. - 11(1993), 2, Seite 177-185 |
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| Format: | Online-Aufsatz |
| Sprache: | English |
| Veröffentlicht: |
1993
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| Zugriff auf das übergeordnete Werk: | Journal of Business & Economic Statistics |
| Schlagworte: | ARCH-in-mean Bond and stock returns Dynamic asset-pricing theory Economics Mathematics Business |
| Zusammenfassung: | Many statistical models of time-varying risk premiums, including the autoregressive conditional heteroscedasticity (ARCH)-in-mean, attempt to exploit a relation between risk premiums and conditional variances or covariances of asset returns. We examine this relation in numerical versions of a dynamic asset-pricing theory and show that it can be increasing, decreasing, flat, or nonmonotonic. Its shape depends on both the preferences of the representative agent and the stochastic structure of the economy. Without additional structure, the theory does not provide either a general foundation for ARCH-in-mean specifications or a simple interpretation of their parameters. |
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| ISSN: | 07350015 |
| DOI: | 10.2307/1391369 |