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We investigate two topics: (1) the nature of the dynamic covariance matrix of stock and bond returns, and (2) the intertemporal relation between risk and return. We estimate a conditional two-factor variant of Merton's ICAPM in which long-term government bond returns proxy for the second risk...
Persistent link: https://www.econbiz.de/10012713644
We analyze a new class of linear factor models in which the factors are latent and the covariance matrix of excess returns follows a multivariate stochastic volatility process. We evaluate cross-sectional restrictions suggested by the arbitrage pricing theory (APT), compare competing stochastic...
Persistent link: https://www.econbiz.de/10005407142
The existing empirical literature fails to agree on the nature of the intertemporal relation between risk and return. This paper attempts to resolve the issue by estimating a conditional two-factor model motivated by Merton's intertemporal capital asset pricing model. When long-term government...
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