Equity market volatility and expected risk premium

Description

"This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. We find strong support for a positive risk-return tradeoff, and this result is not sensitive to a number of robustness checks, including alternative proxies of the conditional stock variance and controls for hedging demands"--Federal Reserve Bank of St. Louis web site.

Subjects

Series Statement

• Working paper -- 2006-007A
• Working paper (Federal Reserve Bank of St. Louis : Online) -- 2006-007A.

Links

• External source