Date: 2014
Type: Article
Regime switches in the risk-return trade-off
Journal of empirical finance, 2014, Vol. 28, pp. 118-138
GHYSELS, Eric, GUERIN, Pierre, MARCELLINO, Massimiliano, Regime switches in the risk-return trade-off, Journal of empirical finance, 2014, Vol. 28, pp. 118-138
- https://hdl.handle.net/1814/39508
Retrieved from Cadmus, EUI Research Repository
This paper deals with the estimation of the risk–return trade-off. We use a MIDAS model for the conditional variance and allow for possible switches in the risk–return relation through a Markov-switching specification. We find strong evidence for regime changes in the risk–return relation. This finding is robust to a large range of specifications. In the first regime characterized by low ex-post returns and high volatility, the risk–return relation is reversed, whereas the intuitive positive risk–return trade-off holds in the second regime. The first regime is interpreted as a “flight-to-quality” regime.
Cadmus permanent link: https://hdl.handle.net/1814/39508
Full-text via DOI: 10.1016/j.jempfin.2014.06.007
ISSN: 0927-5398
Files associated with this item
Files | Size | Format | View |
---|---|---|---|
There are no files associated with this item. |