Risk-Return Trade-Off for European Stock Markets

Publikation: Working paperForskning

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  • rp13_31

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  • Nektarios Aslanidis, University Rovira Virgili, Spanien
  • Charlotte Christiansen
  • Christos S. Savva, Cyprus University of Technology, Cypern
This paper adopts dynamic factor models with macro-finance predictors to revisit the intertemporal risk-return relation in five large European stock markets. We identify country specific, 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.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider33
StatusUdgivet - 9 okt. 2013
SerietitelCREATES Research Papers
Nummer2013-31

    Forskningsområder

  • Risk-return trade-off, Dynamic factor model, Markov switching, Macro-…nance predictors, Higher order moments

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