In the study we introduce an extension to a stochastic volatility in mean model (SV-M), allowing for discrete regime switches in the risk premium parameter. The logic behind the idea is that neglecting a possibly regimechanging nature of the relation between the current volatility (conditional...

The study aims at a statistical verification of breaks in the risk-return relationship for shares of individual companies quoted at the Warsaw Stock Exchange. To this end a stochastic volatility model incorporating Markov switching in-mean effect (SV-MS-M) is employed. We argue that neglecting...