| Title | The conditional equity premium, cross-sectional returns and stochastic volatility |
| Creator | |
| Date Issued | 2014 |
| Source Publication | Economic Modelling
 |
| ISSN | 0264-9993 |
| Volume | 38Pages:316-327 |
| Abstract | Bansal and Yaron (2004) demonstrate, by calibration, that the Consumption-based Capital Asset Pricing Model (CCAPM) can be rescued by assuming that consumption growth rate follows a stochastic volatility model. They show that the conditional equity premium is a linear function of conditional consumption and market return volatilities, which can be estimated handily by various Generalized Autoregressive Conditonal Heteroskedasticity (GARCH) and Stochastic Volatility (SV) models. We find that conditional consumption and market volatilities are capable of explaining cross-sectional return differences. The Exponential GARCH (EGARCH) volatility can explain up to 55% variation of return and the EGARCH model augmented with cay^ - a cointegrating factor of consumption, labor income and asset wealth growth - greatly enhances model performance. We proceed to test another hypothesis: if Bansal and Yaron estimator is an unbiased estimator of true conditional equity premium, then the instrumental variables for estimating conditional equity premium should no longer be significant. We demonstrate that once the theoretical conditional risk premium is added to the model, it renders all instrumental variables redundant. Also, the model prediction is consistent with observed declining equity premium. © 2014 Elsevier B.V. |
| Keyword | Equity premium puzzle Fama-French model Financial economics Macroeconomics and monetary economics |
| DOI | 10.1016/j.econmod.2014.01.009 |
| URL | View source |
| Language | 英语English |
| Scopus ID | 2-s2.0-84893983664 |
| Citation statistics | |
| Document Type | Journal article |
| Identifier | http://repository.uic.edu.cn/handle/39GCC9TT/6499 |
| Collection | Beijing Normal-Hong Kong Baptist University |
| Corresponding Author | Fung，Ka Wai Terence |
| Affiliation | 1.Division of Business and Management,United International College- Beijing Normal University,B414, 28, Jinfeng Road, Tangjiawan,Zhuhai, Guangdong Prov. 519085,China 2.Newcastle Business School,Northumbria University,Newcastle upon Tyne,United Kingdom |
| First Author Affilication | Beijing Normal-Hong Kong Baptist University |
| Corresponding Author Affilication | Beijing Normal-Hong Kong Baptist University |
| Recommended Citation GB/T 7714 | Fung，Ka Wai Terence,Lau，Chi Keung Marco,Chan，Kwok Ho. The conditional equity premium, cross-sectional returns and stochastic volatility[J]. Economic Modelling, 2014, 38: 316-327. |
| APA | Fung，Ka Wai Terence, Lau，Chi Keung Marco, & Chan，Kwok Ho. (2014). The conditional equity premium, cross-sectional returns and stochastic volatility. Economic Modelling, 38, 316-327. |
| MLA | Fung，Ka Wai Terence,et al."The conditional equity premium, cross-sectional returns and stochastic volatility". Economic Modelling 38(2014): 316-327. |
| Files in This Item: | There are no files associated with this item. | |||||
Items in the repository are protected by copyright, with all rights reserved, unless otherwise indicated.
BNBU 
Library
Edit Comment