Abstract
In this paper, we employ instrumental variables methods that allow time-varying risk and reward-to-risk to test various conditional asset pricing models. We find a negative partial relation between the market excess return and conditional market variance. In contrast with recent findings, we show that this negative relationship is not due to the omission of the hedge term associated with the ICAPM. However, conditional market skewness seems to partly account for this negative risk-return relationship.
| Original language | English |
|---|---|
| Pages (from-to) | 582-598 |
| Number of pages | 17 |
| Journal | Quarterly Review of Economics and Finance |
| Volume | 45 |
| Issue number | 4-5 |
| DOIs | |
| Publication status | Published - Sept 2005 |
| Externally published | Yes |
Bibliographical note
Funding Information:We appreciate the comments of Kodjovi Assoé, Narjess Boubakri, Campbell Harvey, Bernhard Nietert, John Scruggs, Karen Sherman, Minh Chau To, Harry Turtle, and Chu Zhang. We would like to thank an anonymous reviewer for valuable suggestions. We also received many helpful inputs from seminar participants at Laval University, the 2001 Northern Finance Association Meeting in Halifax (Canada) and the 2001 Financial Management Association Meeting in Toronto (Canada). All errors remain as our responsibility. Sy would also like to acknowledge the financial support of the Fonds pour la Formation et Chercheurs et l’Aide à la Recherche (FCAR).
ASJC Scopus Subject Areas
- Finance
- Economics and Econometrics