Persistence in the market risk premium: evidence across countries.
Resumen: This paper provides evidence on the degree of persistence of one of the key
components of the CAPM, namely the market risk premium, as well as its
volatility. The analysis applies fractional integration methods to data for the
US, Germany and Japan, and for robustness purposes considers different time
horizons (2, 5 and 10 years) and frequencies (monthly and weekly). The empirical
findings in most cases imply that the market risk premium is a highly
persistent variable which can be characterized as a random walk process, whilst
its volatility is less persistent and exhibits stationary long-memory behaviour.
There is also evidence that in the case of the US the degree of persistence has
changed as a results of various events; this is confirmed by both endogenous
break tests and the associated subsample estimates. Market participants should
take this evidence into account when designing their investment strategies.
Identificador universal: http://hdl.handle.net/10641/2162
Fecha: 2020
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- BUSINESS ANALYTICS [137]