The shape of the risk premium: Evidence from a semiparametric generalized autoregressive conditional heteroscedasticity model

Journal of Business and Economic Statistics

Volumn 21, Issue 3, 2003, Pages 354-367

  Linton, Oliver ^a   Perron, Benoit ^b  

^a LONDON SCHOOL OF ECONOMICS   (United Kingdom)

^b Université Laval   (Canada)

Author keywords

Asset pricing; Autoregressive conditional heteroscedasticity; Backfilling; Fourier series; Kernel; Risk premium

Indexed keywords

EID: 0042265051     PISSN: 07350015     EISSN: None     Source Type: Journal    
DOI: 10.1198/073500103288619052     Document Type: Article

References (50)

1. Abel, A. B. (1987), "Stock Prices Under Time-Varying Dividend Risk: An Exact Solution in an Infinite-Horizon General Equilibrium Model," Journal of Monetary Economics, 22, 375-393.
2. _ (1999), "Risk Premia and Term Premia in General Equilibrium," Journal of Monetary Economics, 43, 3-33.
3. Audrino, F., and Bühlmann, P. (2001), "Tree-Structured GARCH Models," Journal of The Royal Statistical Society, 63, 727-744.
4. Backus, D. K., and Gregory, A. W. (1993), "Theoretical Relations Between Risk Premiums and Conditional Variances," Journal of Business and Economic Statistics, 11, 177-185.
5. Backus, D. K., Gregory, A. W., and Zin, S. E. (1989), "Risk Premiums in the Term Structure: Evidence from Artificial Economies," Journal of Monetary Economics, 24, 371-399.
6. Bollerslev, T., Chou, R. Y., and Kroner, K. F. (1992), "ARCH Modelling in Finance," Journal of Econometrics, 52, 5-59.
7. Bollerslev, T., Engle, R. F., and Nelson, D. B. (1994), "ARCH Models," in Handbook of Econometrics, Vol. IV, eds. R. F. Engle and D. L. McFadden, Amsterdam: Elsevier Science, pp. 2959-3038.
8. Bollerslev, T., and Wooldridge, J. M. (1992), "Quasi-Maximum Likelihood Estimation and Inference in Dynamic Models With Time-Varying Covariances," Econometric Reviews, 11, 143-172.
9. Boudoukh, J., Richardson, M., and Whitelaw, R. F. (1997), "Nonlinearities in the Relation Between the Equity Premium and the Term Structure," Management Science, 43, 371-385.
10. Braun, P. A., Nelson, D. B., and Sunier, A. M. (1995), "Good News, Bad News, Volatility and Betas," Journal of Finance, 50, 1575-1604.
11. Breiman, L., and Friedman, J. H. (1985), "Estimating Optimal Transformations for Multiple Regression and Correlation," Journal of the American Statistical Association, 80, 580-598.
12. Carrasco, M., and Chen, X. (2002), "Mixing and Moment Properties of Various GARCH and Stochastic Volatility Models," Econometric Theory, 18, 17-39.
13. Cox, J., Ingersoll, J., and Ross, S. (1985), "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, 53, 363-384.
14. Davidson, R., and Flachaire, E. (2001), "The Wild Bootstrap, Tamed at Last," unpublished manuscript, Queen's University at Kingston.
15. Dominitz, J., and Sherman, R. (2001), "Convergence Theory for Stochastic Iterative Procedures With an Application to Semiparametric Estimation," unpublished manuscript, California Institute of Technology.
16. Engle, R. F., and Gonzalez-Rivera, G. (1991), "Semiparametric ARCH Models," Journal of Business and Economic Statistics, 9, 345-359.
17. Engle, R. F., Lilien, D. M., and Robins, R. P. (1987), "Estimating Time Varying Risk Premia in the Term Structure: The ARCH-M Model," Econometrica, 55, 391-407.
18. French, K. R., Schwert, G. W., and Stambaugh, R. B. (1987), "Expected Stock Returns and Volatility," Journal of Financial Economics, 19, 3-29.
19. Gallant, A. R. (1981), "On the Bias in Flexible Functional Forms and an Essentially Unbiased Form: The Fourier Flexible Form," Journal of Econometrics, 15, 211-245.
20. Gennotte, G., and Marsh, T. (1993), "Valuations in Economic Uncertainty and Risk Premiums on Capital Assets," European Economic Review, 37, 1021-1041.
21. Glosten, L. R., Jagannathan, R., and Runkle, D. E. (1993), "On the Relation Between the Expected Value and the Volatility of the Nominal Excess Returns on Stocks," Journal of Finance, 48, 1779-1801.
22. Gonzalez-Rivera, G., and Drost, F. C. (1999), "Efficiency Comparisons of Maximum-Likelihood Based Estimators in GARCH Models," Journal of Econometrics, 93, 93-111.
23. Hamilton, J. D. (1994), Time Series Analysis, Princeton, NJ: Princeton University Press.
24. Härdle, W. (1990), Applied Nonparametric Regression, Cambridge, U.K.: Cambridge University Press.
25. Härdle, W., and Linton, O. (1994), "Applied Nonparametric Methods," in Handbook of Econometrics, Vol. IV, eds. R. F. Engle and D. L. McFadden, Amsterdam: Elsevier, pp. 2295-2339.
26. Harvey, C. (2001), "The Specification of Conditional Expectations," Journal of Empirical Finance, 8, 573-638.
27. Hastie, T., and Tibshirani, R. (1990), Generalized Additive Models, New York: Chapman and Hall.
28. Lee, S., and Hansen, B. (1994), "Asymptotic Theory for the GARCH(1,1) Quasi-Maximum Likelihood Estimator," Econometric Theory, 10, 29-52.
29. Lintner, J. (1965), "The Valuation of Risky Assets and the Selection of Risky Investment in Stock Portfolios and Capital Budgets," Review of Economics and Statistics, 47, 13-37.
30. Lumsdaine, R. L. (1996), "Consistency and Asymptotic Normality of the Quasi-Maximum Likelihood Estimator in IGARCH(1,1) and Covariance Stationary GARCH(1,1) Models," Econometrica, 64, 575-596.
31. Mammen, E., Linton, O., and Nielsen, J. P. (1999), "The Existence and Asymptotic Properties of a Backfitting Projection Algorithm Under Weak Conditions," The Annals of Statistics, 27, 1443-1490.
32. Merton, R. C. (1973), "An Intertemporal Capital Asset Pricing Model," Econometrica, 41, 867-887.
33. Nelson, D. B. (1990), "Stationarity and Persistence in the GARCH(1,1) Model," Econometric Theory, 6, 318-334.
34. _ (1991), "Conditional Heteroscedasticity in Asset Returns: A New Approach," Econometrica, 59, 347-370.
35. Newey, W. K., and Steigerwald, D. G. (1997), "Asymptotic Bias for Quasi-Maximum Likelihood Estimators in Conditional Heteroskedasticity Models," Econometrica, 65, 587-599.
36. Opsomer, J. D., and Ruppert, D. (1997), "Fitting a Bivariate Additive Model by Local Polynomial Regression," The Annals of Statistics, 25, 186-211.
37. Pagan, A. R., and Hong, Y. S. (1990), "Non-Parametric Estimation and the Risk Premium," in Nonparametric and Semiparametric Methods in Econometrics and Statistics: Proceedings of the Fifth International Symposium in Economic Theory and Econometrics, eds. W. A. Barnett, J. Powell, and G. Tauchen, Cambridge, U.K.: Cambridge University Press, pp. 51-75.
38. Pagan, A. R., and Ullah, A. (1999), Nonparametric Econometrics, Cambridge, U.K.: Cambridge University Press.
39. _ (1998), "A Monte Carlo Comparison of Non-Parametric Estimators of the Conditional Variance," unpublished manuscript, University of Montréal.
40. Perron, B. (in press), "Semi-Parametric Weak Instrument Regressions With an Application to the Risk-Return Trade-Off," Review of Economics Statistic, 85, 424-443.
41. Powell, J. (1994), "Estimation of Semiparametric Models," in Handbook of Econometrics, Vol. IV, eds. R. F. Engle and D. L. McFadden, Amsterdam: Elsevier, pp. 2443-2521.
42. Robinson, P. M. (1983), "Nonparametric Estimators for Time Series." Journal of Time Series Analysis, 4, 185-207.
43. _ (1988), "Root-N-Consistent Semiparametric Regression." Econometrica, 56, 931-954.
44. Sharpe, W. (1964), "Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk," Journal of Finance, 19, 567-575.
45. Silverman, B. W. (1986), Density Estimation for Statistics and Data Analysis, New York: Chapman and Hall.
46. Tadikamalla, P. R. (1980), "Random Sampling From the Exponential Power Distribution," Journal of the American Statistical Association, 75, 683-686.
47. Veronesi, P. (2001), "How Does Information Quality Affect Stock Returns?" Journal of Finance, 55, 807-837.
48. Weiss, A. (1986), "Asymptotic Theory for ARCH Models: Estimation and Testing," Econometric Theory, 2, 107-131.
49. Whitelaw, R. F. (2000), "Stock Market Risk and Return: An Equilibrium Approach," Review of Financial Studies, 13, 521-547.
50. Wooldridge, J. M. (1994): "Estimation and Inference for Dependent Processes," in Handbook of Econometrics, Vol. IV, eds. R. F. Engle and D. L. McFadden, Amsterdam: Elsevier, pp. 2659-2738.