Investigating ICAPM with Dynamic Conditional Correlations
This paper examines the intertemporal relation between expected return and risk for 30 stocks in the Dow Jones Industrial Average. The mean-reverting dynamic conditional correlation model of Engle (2002) is used to estimate a stocks conditional covariance with the market and test whether the conditional covariance predicts time-variation in the stocks expected return. The risk-aversion coefficient, restricted to be the same across stocks in panel regression, is estimated to be between two and four and highly significant. This result is robust across different market portfolios, different sample periods, and alternative specifications of the conditional covariance process. Risk premium induced by the conditional covariation of individual stocks with the market portfolio remains economically and statistically significant after controlling for risk premiums induced by conditional covariation with macroeconomic variables (federal funds rate, default spread, and term spread), financial factors (size, book-to-market, and momentum), and volatility measures (implied, GARCH, and range volatility).
ICAPM Dynamic conditional correlation ARCH Risk aversion Dow Jones
Turan G. Bali Robert F. Engle
Department of Economics and Finance,Zicklin School of Business,Baruch College,One Bernard Baruch Way New York University Stern School of Business,44 West Fourth Street,Suite 9-62,New York,NY 10012
国际会议
大连
英文
1-63
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）