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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27415
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| Title: | Risk and Return: Some New Evidence |
| Authors: | Guo, Hui
Whitelaw, Robert |
| Issue Date: | Oct-2000 |
| Series/Report no.: | S-AM-00-05 |
| Abstract: | We develop a structural asset pricing model to investigate the
relationship between stock market risk and return. The structural model
is estimated using the conditional market variance implied by S&P
100 index option prices. Relative risk aversion is precisely identified
and is found to be positive, with point estimates ranging from 3.06 to
4.01. However, the implied volatility data only spans the period
November 1983 to May 1995. As a robustness check, the structural model
is also examined with postwar monthly data, in which the conditional
market variance is estimated. We again find a positive and significant
risk-return relation and get similar point estimates for relative risk
aversion. Additionally, we document some facts about stock market
return. First, stock price movements are primarily driven by changes in
investment opportunities, not by changes in market volatility. Second,
there is some evidence of a leverage effect. Third, relative risk
aversion is quite stable over time. |
| URI: | http://hdl.handle.net/2451/27415 |
| Appears in Collections: | Asset Management
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