Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills
36 Pages Posted: 28 Dec 2006 Last revised: 6 Sep 2024
Date Written: November 1988
Abstract
Asset pricing relations are developed for a vector of assets with a time varying covariance structure. Assuming that the eigenvectors are constant but the eigenvalues changing, both the Capital Asset Pricing Model and the Arbitrage Pricing Theory suggest the same testable implication: the time varying part of risk premia are proportional to the time varying eigenvalues. Specifying the eigenvalues as general ARCH processes. the model is a multivariate Factor ARCH model. Univariate portfolios corresponding to the eigenvectors will have (time varying) risk premia proportional to their own (time varying) variance and can be estimated using the GARCH-M model. This structure is applied to monthly treasury bills from two to twelve months maturity and the value weighted NYSE returns index. The bills appear to have a single factor in the variance process and this factor is influenced or "caused in variance" by the stock returns.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Measuring and Testing the Impact of News on Volatility
By Robert F. Engle and Victor K. Ng
-
Caviar: Conditional Value at Risk by Quantile Regression
By Simone Manganelli and Robert F. Engle
-
Dynamic Conditional Correlation - a Simple Class of Multivariate GARCH Models
-
Dynamic Conditional Correlation a Simple Class of Multivariate GARCH Models
-
Dynamic Conditional Correlation - a Simple Class of Multivariate GARCH Models
-
Dynamic Conditional Correlation : A Simple Class of Multivariate GARCH Models
-
Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH
By Kevin Sheppard and Robert F. Engle
-
Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH
By Robert F. Engle and Kevin Sheppard
-
Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH
By Robert F. Engle and Kevin Sheppard
-
Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns
By Lorenzo Cappiello, Robert F. Engle, ...