Countercyclical and time-varying reward to risk and the equity premium

Jan Antell; Mika Vaihekoski

doi:10.1016/j.ribaf.2023.102017

Countercyclical and time-varying reward to risk and the equity premium

Jan Antell, Mika Vaihekoski

Finance, Helsinki

University of Turku

Research output: Contribution to journal › Article › Scientific › peer-review

Abstract

We study whether the equity premium is related to volatility or variance, whether the reward to market risk is positive, and whether it behaves in a counter-cyclical fashion. Using APARCH models for the conditional market risk, we compare the traditional and the new testing approach of Antell and Vaihekoski (2019) on the monthly US equity premium from 1928 to 2018. The results from the new approach give stronger support for the pricing of volatility rather than variance and for positive reward to market risk. The support for time-varying and countercyclical reward to risk is smaller than previously thought.

Original language	English
Article number	102017
Peer-reviewed scientific journal	Research in International Business and Finance
Volume	66
Number of pages	17
ISSN	0275-5319
DOIs	https://doi.org/10.1016/j.ribaf.2023.102017
Publication status	Published - 15.06.2023
MoE publication type	A1 Journal article - refereed

Keywords

512 Business and Management
conditional asset pricing
equity premium
reward to risk
market risk
business cycles

Areas of Strength and Areas of High Potential (AoS and AoHP)

AoS: Financial management, accounting, and governance

Access to Document

10.1016/j.ribaf.2023.102017Licence: CC BY

1-s2.0-S0275531923001435-mainFinal published version, 1.74 MBLicence: CC BY

OpenUrl availability

Full text

Cite this

@article{ecb40729b5f8435c90b5df18ab873162,

title = "Countercyclical and time-varying reward to risk and the equity premium",

abstract = "We study whether the equity premium is related to volatility or variance, whether the reward to market risk is positive, and whether it behaves in a counter-cyclical fashion. Using APARCH models for the conditional market risk, we compare the traditional and the new testing approach of Antell and Vaihekoski (2019) on the monthly US equity premium from 1928 to 2018. The results from the new approach give stronger support for the pricing of volatility rather than variance and for positive reward to market risk. The support for time-varying and countercyclical reward to risk is smaller than previously thought.",

keywords = "512 Business and Management, conditional asset pricing, equity premium, reward to risk, market risk, business cycles",

author = "Jan Antell and Mika Vaihekoski",

note = "Publisher Copyright: {\textcopyright} 2023 The Author(s)",

year = "2023",

month = jun,

day = "15",

doi = "10.1016/j.ribaf.2023.102017",

language = "English",

volume = "66",

journal = "Research in International Business and Finance",

issn = "0275-5319",

publisher = "Elsevier",

}

TY - JOUR

T1 - Countercyclical and time-varying reward to risk and the equity premium

AU - Antell, Jan

AU - Vaihekoski, Mika

PY - 2023/6/15

Y1 - 2023/6/15

N2 - We study whether the equity premium is related to volatility or variance, whether the reward to market risk is positive, and whether it behaves in a counter-cyclical fashion. Using APARCH models for the conditional market risk, we compare the traditional and the new testing approach of Antell and Vaihekoski (2019) on the monthly US equity premium from 1928 to 2018. The results from the new approach give stronger support for the pricing of volatility rather than variance and for positive reward to market risk. The support for time-varying and countercyclical reward to risk is smaller than previously thought.

AB - We study whether the equity premium is related to volatility or variance, whether the reward to market risk is positive, and whether it behaves in a counter-cyclical fashion. Using APARCH models for the conditional market risk, we compare the traditional and the new testing approach of Antell and Vaihekoski (2019) on the monthly US equity premium from 1928 to 2018. The results from the new approach give stronger support for the pricing of volatility rather than variance and for positive reward to market risk. The support for time-varying and countercyclical reward to risk is smaller than previously thought.

KW - 512 Business and Management

KW - conditional asset pricing

KW - equity premium

KW - reward to risk

KW - market risk

KW - business cycles

UR - http://www.scopus.com/inward/record.url?scp=85162115690&partnerID=8YFLogxK

U2 - 10.1016/j.ribaf.2023.102017

DO - 10.1016/j.ribaf.2023.102017

M3 - Article

SN - 0275-5319

VL - 66

JO - Research in International Business and Finance

JF - Research in International Business and Finance

M1 - 102017

ER -

Countercyclical and time-varying reward to risk and the equity premium

Abstract

Keywords

Areas of Strength and Areas of High Potential (AoS and AoHP)

Access to Document

OpenUrl availability

Other files and links

Fingerprint

Cite this