The Time-Varying Garch-in-Mean Model

17 Pages Posted: 26 Apr 2017

See all articles by Gustavo Fruet Dias

Gustavo Fruet Dias

University of East Anglia (UEA) - School of Economics; CREATES

Date Written: April 25, 2017

Abstract

I introduce the time-varying GARCH-in-mean (TVGARCH-in-mean) model and propose an estimation strategy for the stochastic time-varying risk premium parameter. A Monte Carlo study shows that the proposed algorithm has good finite sample properties. Using monthly excess returns on the CRSP index, I document that the risk premium parameter is indeed time-varying and shows high degree of persistence.

Keywords: risk premium, time-varying coefficients, iterative estimators, risk-return tradeoff, GARCH-type models

JEL Classification: C13, C15, C18, C22, G12

Suggested Citation

Fruet Dias, Gustavo, The Time-Varying Garch-in-Mean Model (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2958132 or http://dx.doi.org/10.2139/ssrn.2958132

Gustavo Fruet Dias (Contact Author)

University of East Anglia (UEA) - School of Economics ( email )

3.06, Registry
University of East Anglia
Norwich, NR4 7TJ
United Kingdom

CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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