Analyzing the Time-Varying Stock Market Risk-Return Relation

34 Pages Posted: 2 Jan 2009 Last revised: 21 Jun 2011

See all articles by C. N. V. Krishnan

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

Ralitsa Petkova

Case Western Reserve University - Department of Banking & Finance

Date Written: June 15, 2011

Abstract

We analyze the stock market risk-return relation over the period from 1927 to 2005. We empirically implement the Intertemporal Capital Asset Pricing Model (ICAPM) using a cross-section of stock and bond portfolios, and allow for the market price of risk to be time-varying. We show that including bond portfolios in the estimation not only significantly changes the time-series estimates of the market price of risk, but also makes the correlation between conditional stock-market variance and the variance component of expected market return positive.

Keywords: Stock Market Risk-Return Relation, Stock and bond portfolios, Market price of risk, Conditional stock-market variance, Risk component of expected market return

JEL Classification: G12

Suggested Citation

Krishnan, C. N. V. and Petkova, Ralitsa, Analyzing the Time-Varying Stock Market Risk-Return Relation (June 15, 2011). Available at SSRN: https://ssrn.com/abstract=1322312 or http://dx.doi.org/10.2139/ssrn.1322312

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Ralitsa Petkova

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
348
rank
83,948
Abstract Views
1,378
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information