In this paper a new GARCH–M type model, denoted the GARCH-AR, is proposed. In particular, it is shown that it is possible to generate a volatility-return trade-off in a regression model simply by introducing dynamics in the standardized disturbance process. Importantly, the volatility in the...

A new semiparametric estimator for an empirical asset pricing model with general nonparametric risk-return tradeoff and a GARCH process for the underlying volatility is introduced. The estimator does not rely on any initial parametric estimator of the conditional mean function, and this feature...

Forecasting using factor models based on large data sets have received ample attention due to the models' ability to increase forecast accuracy with respect to a range of key macroeconomic variables in the US and the UK. However, forecasts based on such factor models do not uniformly outperform...